Namma Kalvi 11th Economics Chapter 12 and 3 Sura Guide em 214735

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Economics
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11th Standard
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Based on the updated new textbook for 2019
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Salient Features
Prepared as per the updated new textbook for the year 2019.
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Exhaustive Additional Questions in all Sections.
Govt. Model Question Paper-2018 [Govt. MQP-2018], First Mid-Term Test

[First Mid - 2018], Quarterly Exam - 2018 [QY-2018], Half Yearly Exam - 2018
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[HY-2018] and Board Expected Questions [BEQ] are incorporated at appropriate

sections.
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Govt. Model Question Paper with Answer Key.

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1 Introduction To
Micro-Economics
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CHAPTER SNAPSHOT
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Introduction to Micro Economics 1.6 Economics : Its Methods, Facts, Theories
1.1 Introduction and Laws
1.2 Economics : Meaning 1.6.1 Methods of Economics :
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1.3 Economics : Its Nature Deduction and Induction
1.3.1 Wealth Definition : Adam Smith 1.6.2 Economics : Facts, Theories
1.3.2 Welfare Definition : 1.6.3 Nature of Economic Laws
Alfred Marshall 1.7 Economics : Its Sub Divisions

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1.3.3 Scarcity Definition : 1.7.1 Consumption
1.7.2 Production
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Lionel Robbins
1.3.4 Growth Definition : Samuelson 1.7.3 Exchange
1.4 Scope of Economics 1.7.4 Distribution
1.4.1 Economics : Its Subject Matter 1.8 Economics : Its Types
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1.4.2 Economics is an Art and a Science 1.8.1 Micro-Economics

1.4.3 Economics : Positive Science and 1.8.2 Macro - Economics
Normative Science 1.8.3 International Economics
1.5 Basic Concepts in Economics 1.8.4 Public Economics
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1.5.1 Goods and Services 1.8.5 Developmental Economics

1.5.2 Utility 1.8.6 Health Economics
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1.5.3 Price 1.8.7 Environmental Economics

1.5.4 Market 1.9 Basic Economic Problems
1.5.5 Cost 1.10 Production Possibility Curve
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1.5.6 Revenue 1.11 Conclusion

1.5.7 Equilibrium
1.5.8 Income
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[1]

2
CONCEPT MAP
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INTRODUCTION TO MICRO - ECONOMICS
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Nature of Economics Scope of Economics Basic concepts in Economics : Its Economics Economics : Its Sub
Economics Methods, Facts, Types Divisions
Theories and Laws
Wealth Definiion : Economics : Its

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Adam Smith subject matter Methods of
Goods and Consumption
Economics Micro -
Services
Deduction and Economics
Welfare Definition : Economics is an Induction
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Alfred Marshall Art and Science Utility Macro - Production
Economies : Economics
Sura’s  XI Std - Economics
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Price Facts, Theories Exchange
Positive science International
Scarcity Definition :
and Normative Economics
Lionel Robbins
science Market Nature of Distribution
Economic Laws Public
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Cost Economics
Growth Definition :
Samuelson
Developmental
Revenue Economics
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➠ Chapter 1 ➠ Introduction To
Equilibrium Health
Economics
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Income
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Environmental
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Economics
Micro-Economics
Sura’s  XI Std - Economics ➠ Chapter 1 ➠ Introduction To Micro-Economics 3
IMPORTANT TERMS
Nature of : Nature of economics is understood by studying the various definition given by
Economics the notable economists.
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Economics its : Economics focuses on the behaviour and interactions among economic agents,
subject matter individuals and groups belonging to economic system.
Positive science : Positive science deals with 'What it is'.
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Normative Science : Normative science responses to a question like 'what ought to be'.
Basic concepts in : Economics also has concepts to explain its theories.
Economics
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Goods and Services : In economics both goods and services satisfy human wants.
Free Goods : Resources that are not scarce are called free goods
Economic Goods : Goods which scarce are called economic goods.
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Consumer Goods : Consumer goods directly satisfy human wants.
Capital Goods : Capital Goods help to produce consumer goods.
Perishable Goods : Perishable goods are short lived.
Durable Goods :
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Durable goods and semi-durable goods have a little longer life-time than the
perishable goods.
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Utility : In economics, Utility is the want-satisfying power of a commodity or a service.
Price : Price is the value of the goods expressed in terms of money.
Market : Market means a place where commodities are bought and sold.
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Cost : Cost is the value of money incurred to produce or acquire a given quantum of
goods.
Revenue : Revenue is income obtained from the sale of goods and services
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Deductive Method : It consists in deriving conclusions from general truths, it takes few general
principles and applies them to draw conclusions.
Inductive Method : It involves the process of reasoning from particular facts to general principle.
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Consumption : Consumption deals with the satisfaction of human wants.

Production : Production is the process of transformation of inputs into output.
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Exchange : Exchange is concerned with price determination in different market forms

Distribution : Distribution studies about the pricing of factors of production.
Micro Economics : Micro Economics is the study of the economic actions of small groups of
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individuals say households, firms or industries.

Macro economics : It is concerned with the economy as a whole.
Public Economics : Public finance is concerned with the income as revenue raising and expenditure
incurring activities of the public authorities.
Health Economics : Health economics is on area of applied economics.

4 Sura’s  XI Std - Economics ➠ Chapter 1 ➠ Introduction To Micro-Economics
MUST KNOW DEFINITIONS

Definition of : According to Alfred Marshall "Inductive and Deductive Methods are both
Deductive and needed for scientific thought as the right and left foot are both needed for
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Inductive Method walking"
Defination of free : According to Milton Freidman, popularises a saying "There is no such thing as
Goods a free lunch".
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Wealth Definition : Adam Smith (1723 - 1790), in his book "An Inquiry into the Nature and Causes
of Wealth of Nations" (1776) defines "Economics as the science of wealth".
Definition of : "Economics is everywhere, and understanding economics can help you make
Economics better decisions and lead a happier life" - Tyler Gowen.
s.
Welfare Definition : Alfred Marshall defines Economics is a study of mankind in the Ordinary
business of life it examines that part of individual and social actions which is
most closely connected with the attainment and with the use of the material
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requisities of well being. Thus, it is on one side a study of wealth; and on the
other and more important side, a part of the study of man."
Scarcity Definition : According to Lionel Robbins, "Economics is a science which studies human
behaviour as a relationship between ends and scarce means which have
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alternative uses."
Growth Definition : Prof. Paul Samuelson defines economics as "the study of how men and society
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choose, with or without the use of money, to employ scarce productive resources
which could have alternative uses, to produce various commodities over time,
and distribute them for consumption, now and in the future among various
people and groups of society."
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Define Equilibrium : Prof. Stigler states that "equilibrium is a position from which there is no net
tendency to move."
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TEXTUAL QUESTIONS AND

ANSWERS
Model Questions 6. The equilibrium price is the price at which
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(a) Everything is sold
PART - A (b) Buyers spend their money

(c) Quantity demanded equals quantity supplied
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Multiple Choice Questions. (d) Exess demand is zero
[Ans. (c) Quantity demanded equals quantity
1. 'Economics is a study of mankind in the ordinary
business of life' - It is the statement of. [BEQ]
supplied]
(a) Adam Smith (b) Lionel Robbins 7. Author of "An Inquiry into the Nature and Causes
s.
(c) Alfred Marshall (d) Samuelson of Wealth of Nations"
[Ans. (c) Alfred Marshall] (a) Alfred Marshall (b) Adam Smith
2. The basic problem studied in Economics is ____ (c) Lionel Robbins (d) Paul A Samuelson
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(a) Unlimited wants [BEQ] [QY-2018] [Ans. (b) Adam Smith]
(b) Unlimited means 8. "Economics studies human behaviour as a
(c) Scarcity relationship between ends and scarce means
(d) Strategy to meet all our wants which have alternative uses" is the definition of

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[Ans. (c) Scarcity]
economics of
3. Micro Economics is concerned with ____ (a) Lionel Robbins (b) Adam Smith
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(a) The economy as a whole [First Mid-2018] (c) Alfred Marshall (d) Paul A Samuelson
(b) Different sectors of an economy [Ans. (a) Lionel Robbins]
(c) The study of individual economic units behaviour
(d) The interactions within the entire economy 9. Who is the father of Economics? [BEQ] [HY-2018]
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[Ans. (c) The study of individual economic (a) Max Muller (b) Adam Smith
units behaviour] (c) Karl Marx (d) Paul A Samuelson
4. Which of the following is a micro economics [Ans. (b) Adam Smith]
statement? [BEQ] [Govt. MQP-2018]
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10. "Economics is a science" the basis of this

(a) The real domestic output increased by 2.5 percent statement is [BEQ]
last year
(a) Relation between cause and effect
(b) Unemployment was 9.8 percent of the labour
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force last year (b) Use of dedective method and inductive method
(c) The price of wheat determines its demand for the formations of laws
(d) The general price level increased by 4 percent (c) Experiments
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last year (d) All of the above [Ans. (d) All of the above]
[Ans. (c) The price of wheat determines its
11. Utility means
demand]
(a) Equilibrium point at which demand and supply
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5. Find the odd one out : are equal

[BEQ] [Govt. MQP-2018; First Mid-2018; QY-2018]
(b) Want - satisfying capacity of goods and services
(a) "An Inquiry into the nature and the causes of the
Wealth of Nations". (c) Total value of commodity.
(b) "Principles of Economics" (d) Desire for goods and services
(c) "Nature and Significance of Economic science" [Ans. (b) Want - satisfying capacity of goods and
(d) "Ceteris Paribus" [Ans. (d) "Ceteris Paribus"] services]

12. A market is 18. Who has given scarcity definition of economic?

(a) Only a place to buy things (a) Adam Smith (b) Marshall
(b) Only a place to sell things (c) Robbins (d) Robertson
(c) Only a place where prices adjust [Ans. (c) Robbins]
(d) A system where persons buy and sell goods
19. The process of reasoning from particular to
directly or indirectly
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general is [First Mid-2018]
[Ans. (d) A system where persons buy and sell
goods directly or indirectly] (a) Deductive method (b) Inductive method
(c) Positive economics (d) Normative economics
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13. Which one of the following is not a point in the [Ans. (b) Inductive method]
Welfare Definition of Economics?
(a) Study of ordinary man 20. Total revenue is equal to total output sold
multiplied by
(b) Economics does not focus on wealth alone
(a) Price (b) Total cost
(c) Economics is the study of material welfare
s.
(c) Marginal revenue (d) Marginal cost
(d) Economics deals with unlimited wants and
[Ans. (a) Price]
limited means
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[Ans. (d) Economics deals with unlimited
wants and limited means] PART - B
14. Growth definition takes into account
(a) The problem of choice in the dynamic frame
Answer The Following Questions In
One or Two Sentences.
work of Economics.
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(b) The problem of unlimited means in relation to
21. What is meant by Economics? [BEQ]
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wants
Ans. (i) The word 'Economics' comes from the ancient
(c) The production and distribution of wealth
greek oikonomikos.
(d) The material welfare of human beings
[Ans. (a) The problem of choice in the dynamic (ii) The term 'Economics' means "Management of
frame work of Economics.] households".
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(iii) The 'Political Economy' is renamed as

15. Which theory is generally included under micro
economics.
economics?
(a) Price Theory (b) Income Theory 22. Define Micro economics.
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(c) Employment Theory (d) Trade Theory Ans. (i) Micro economics is the study of the economic
[Ans. (a) Price Theory] actions of small group of individuals say
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16. ____ have exchange value and their ownership households, firms, or industries.
rights can be established and exchanged (ii) It studies how business firms operate under
(a) Goods (b) Services different market conditions and how the
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(c) Markets (d) Revenue combined actions of buyers and sellers

[Ans. (a) Goods] determine prices.
17. Identify the correct characteristics of utility[BEQ] 23. What are goods?
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(a) It is equivalent to 'usefulness' Ans. (i) In Economics, the term 'goods' and 'services'
(b) It has moral significance also implies, unless specified otherwise.
(c) It is same as pleasure
(ii) Goods are also called 'products', 'commodities',
(d) It depends upon consumer's mental attitude 'things' etc.
[Ans. (d) It depends upon consumer's mental
attitude] (iii) Goods and services satisfies human wants.

24. Distinguish goods from services. Major features of Robbins' defination are :
[BEQ] [First Mid-2018; QY-2018] (i) Human beings have unlimited number of
Ans. wants.
S.
Goods Services
(ii) Human wants are unlimited but supply is not
No. sufficient so it become scarcity.
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1 Goods are produced Services are performed (iii) The scarcity of a commodity is to be considered
2 Goods are tangible and Services are intangible only in relation to its demand.
homogeneous in nature and heterogeneous in (iv) The scarce means are capable of having
nature
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alternative uses.
3 Goods are physical Services are more like
things and involves a process Criticism :
production (i) Robbins does not make any distinction
between goods conductive to human welfare
25. Name any two types of utility.
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and goods that are not.
Ans. (i) Time Utility [BEQ] [First Mid-2018; HY-2018] (ii) In the production of rice and alcoholic drink,
(ii) Place Utility scarce resources are used.
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(iii) Robbins' definition doesn't cover the theory of
26. Define Positive economics.
economic growth and development.
Ans. (i) Positive science deals with what it is.
(ii) Which means analyses a problem on the basis 29. What are the crucial decisions involving 'What is
produced'? [QY-2018]
of facts and examines its causes.
o Ans. (i) Whether to produce more food or more luxury
(iii) For example : at the time of a price increase, its
goods.
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causes are analysed.
(ii) Whether to have more agricultural goods or
27. Give the meaning of deductive method. industrial goods.
Ans. (i) Deductive method means deriving conclusions (iii) Whether to use more resources in education
from general truths. and health or more in military services.
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(ii) It takes few general principles and applies them (iv) Whether to have more consumption goods or
to draw conclusions. investment goods.
(iii) It is also called as analytical (or) abstract (v) Whether to spend more on basic education or
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method. higher education

30. Explain different types of economic activities.
PART - C [HY-2018]
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Ans. Economic activities are related to Production,

Answer The Following Questions In Distribution, Exchange and Consumption of goods
One Paragraph. and services.
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(i) Consumption : It serves as the starting point

28. Explain the scarcity definition of Economics and of economic activity.
assess it. [BEQ] [First Mid-2018] (ii) Production : The primary aim of the economic
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Ans. Lionel Robbins published a book "An Essay on the activity is the production of goods and services
Nature and Significance of Economic Science" in make them available to consumer.
1932. According to him, "Economics is a science (iii) Exchange : "Human activities which are
which studies human behaviour as a relationship performed in exchange for money".
between ends and scarce means which have
(iv) Distribution : The produced wealth has to be
alternative uses".
distributed among the cooperating factors.

31. Elucidate different features of services. Sl.

Micro Economics Macro Economics
Ans. Four features of services are, No.
(i) Intangible : Intangible things are not physical It is known as price It is also known as the
4
objects but exist in connection to other things. theory. income theory.
5 It is concerned with It is concerned with
For Example : Brand Image, Goodwill etc. the optimization the optimization of the
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(ii) Heterogeneous : A single type services yields goals of individual growth process of the
multiple experiences consumers and entire economy.
producers.
For Example : Music etc.
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34. Compare positive economics and normative
(iii) Inseparable from their makers : Services are
inextricably connected to their makers. economics. [BEQ]
Ans.
For Example : Labour
Sl.
(iv) Perishable : Services cannot be stored as Positive Economics Normative Economics
No.
s.
inventories like assets.
1 Positive science deals Normative science
For Example : Cricket Match. with 'what it is' concerned with 'what
ought to be'.
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32. What are the important features of utility?
2 It analyses problem Here the conclusions and
Ans. (i) Utility is psychological on the basis of facts results are not based on
and examines its facts, but on different
(ii) Utility is not equivalent to usefulness
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(iii) Utility is personal and relative. 3 Positive science, Normative science it
(iv) It is the function of the intensity of human want. would be looked into would be seen whether
why and how? good or bad.
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(v) Utility cannot be measured objectively.
(vi) Utility has no ethical or moral significance.
PART - D
33. Distinguish between micro economics and macro
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economics. [BEQ] [Govt. MQP-2018; First Mid-2018] Answer The Following Questions in
Ans. About a Page.
Sl.
Micro Economics Macro Economics
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No. 35. Compare and contrast various definitions of

It is that branch of It is that branch of Economics. [Govt. MQP-2018; QY-2018]
economics which economics which deals
deals with the with aggregates and Ans. Marshall's Definition vs. Robbin's Definition
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economic decision averages of the entire

1 Marshall's Definition Robbin's Definition
making of individual economy. E.g., aggregate
economic agents such output, national income, "Economics is the study "Economic is the science
as the producer, the aggregate savings and of man in the ordinary which studies human
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consumer etc. investments, etc. business of life." It behaviour as a relationship

2 It takes into account It takes into examines that part of between multiple ends and
small components of consideration the individual and social scarce means, which have
the whole economy. economy of the country action, which is most alternative uses".
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as a whole. closely connected with the

attainment and with the
3 It deals with the It deals with general use of material requisites
process of price price-level in any of well being.
determination in economy.
case of individual
products and factors
Similarities between Robbins & Marshall's
of production. Definition.

Human Behaviour : Exchange :

(i) Both the definitions are concerned with human (i) It is concerned with price determination in
behaviour. different market forms.
(ii) Marshall's and Robbin's definitions are (ii) It covers trade and commerce.
concentrate on optimization. Distribution :
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(iii) According to Marshall, wealth is the basic (i) The produced wealth has to be distributed
source of maximisation of material welfare. among the co operating factors.
Robbins is of the opinion that maximize our (ii) Distribution studies about the pricing of factors
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satisfaction by scarce resources. of production.
Differences between Marshall's & Robbins 37. Elaborate the nature and scope of Economics.
Definition.
Ans. (I) Nature of Economics: [HY-2018]
Economic activity - Material / Immaterial :
1. A Law expresses a causal relation between
s.
(i) Marshall believes in only material activities two or more than two phenomena.
which promote material welfare. 2. Marshall states that the Economic laws are
(ii) Robbins believes in both material and immaterial statement of tendencies the laws function
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activities to tackle the problem of choice. with cause and effect.
Social Science / Natural Science : 3. Economic laws are not as precise and
(i) Marshall economics is a social science. certain as the laws in the physical sciences.
(ii) Robbins Economics is natural science like
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Physics, Chemistry etc. 5. The use of the assumption ‘other things
Practical / Theoretical : remaining the same’
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(i) Marshall's definition is practical in nature. 6. Economics makes the Economic laws
(ii) Robbins definition is theoretical in nature. hypothetical.
Welfare / Scarcity : 7. Laws in economics are more exact,
(i) Marshall's definition is based on human material precise and accurate than the other social
welfare. sciences.
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(ii) Robbins definition is based on scarcity 8. Some economic laws are simply truisms.
resources. (II) The scope of the subject of Economics refers
to on the subject-matter of Economics.
36. Explain various divisions of Economics.
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1. All human activities related to wealth

[BEQ] [First Mid-2018]
constitute the subject-matter of
Ans. Consumption, Production, Distribution, Exchange Economics.
are the main divisions of economics.
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2. Production, consumption and capital

Consumption : formation are called the basic economic
(i) Human wants coming under consumption. activities of an economy.
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(ii) It serves as the starting point of economic

Wants
activity.
(iii) Characteristics of human wants based on the
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behaviour of the consumer, the diminishing Efforts

Consumption
utility and consumer surplus are dealt with.
Production :
(i) It is the process of transformation of inputs
into output. Distribution & Production
(ii) This division covers the role of the factors of Exchange
production.

3. The flow chart give the scope of economics. Diagramatic Representation of Production
4. Economics focuses on the behaviour and Possibility Curve
interactions among economic agents,
individuals and groups belonging to an Y Production Possibilities Curve
economic system.
P1
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5. Human activities not related to wealth 25 P2
P
(noneconomic activities) are not treated in 20 P3
No. of Cars
Economics. For example, playing cricket P4
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for pleasure, mother’s child care.
P1 P5
38. Explain basic problems of the economy with the 10
help of production possibility curve. 5 P6
[BEQ] [First Mid-2018]
0 100 200 300 400 X
s.
Ans. The problem of choice between relatively scarce Food Production
commodities due to limited productive resources can
be illustrated with the help of a geometric device is
Explanation :
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known as production possibility curve.
Assumption : (i) The quantity of food is shown on X-axis and
No. of Cars on the Y - axis.
(i) The time period does not change.
(ii) Techniques of production are fixed. (ii) The different six production possibilities are
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(iii) There is full employment in the economy. being shown as point P1, P2, P3, P4, P5 & P6.
(iv) Resources of production are fully employed.
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(iii) The production possibility curve P1 to P6.
(v) The law of diminishing returns operates in
business. (iv) The locus of points of the different possibilities
(vi) To draw this curve we take the help of production of production of two commodities which a
possibility schedule, as shown below. firm or an economy can produce,with the
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Production Possibility Schedule : help of given resources and the techniques of

production.
Quantity
Production of food No. of Car (v) Points lying inside the curve like P1 are
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Possibilities production in Production

attainable by the society but these points
tons
resources production are not fully exployed.
I 0 25
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II 100 23 (vi) Shift of Production Possibility Curve the PPC

III 200 20 shifts upward or downward due to.
IV 300 15
 The change in the supply of productive
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V 400 8
VI 500 0 resources.
This schedule suggests that if all resources are  The change in the state of technology.
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thrown in to the production of food, a maximum

of 500 tons of food can be produced, given the  This outward shift of the PPC is the
existing technology. features of economic growth.

ADDITIONAL
QUESTIONS AND ANSWERS
PART - A 8. The term or word 'Economics' comes from ____
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language
Multiple Choice Questions 1 MARK (a) Latin (b) Ancient Greek
(c) Spanish (d) British
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1. The process of reasoning from general to [Ans. (b) Ancient Greek]
particular is [HY-2018]
9. "Economics as the science of wealth" - It is the
(a) Deductive method (b) Inductive method statement of [BEQ]
(c) Positive economics (d) Normative economics (a) Adam Smith (b) Lionel Robbins
s.
[Ans. (a) Deductive method] (c) Alfred Marshall (d) Samuelson
2. Production is the process of ____ of input into [Ans. (a) Adam Smith]
output. [First Mid-2018] 10. Welfare means ____
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(a) Consumption (b) distribution (a) Happiness
(c) transformation (d) Public finance (b) Comfortable living conditions of an individual
[Ans. (c) transformation] (c) Comfortable living conditions of group of people
3. Which one is not the basic Economic problem. (d) All of these [Ans. (d) All of these]
(a) What to produce
o[QY-2018] 11. Economics is a ____ science
(b) How to produce (a) Social (b) Moral
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(c) For whom to produce (c) Physical (d) Natural
(d) Environmental economics [Ans. (a) Social]
[Ans. (d) Environmental economics] 12. ____ science deals with 'What it is'
(a) Normative (b) Positive
4. Who is the father of 'New Economics'?
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[BEQ]
(c) Negative (d) None of these
(a) Max Muller (b) Adam Smith
[Ans. (b) Positive]
(c) J.M. Keynes (d) Karl Marx
13. ____ are transferable
[Ans. (c) J.M. Keynes]
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(a) Goods (b) Products

5. Macro Economics is concerned with (c) Commodities (d) All of these
(a) The theory as a whole [Ans. (d) All of these]
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(b) Different sectors of an economy 14. Capital goods also called as ____ goods.
(c) The study of individual economic behaviour (a) Consumer (b) Producer's
(d) The interactions within the entire economy (c) Free goods (d) None of these
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[Ans. (a) The theory as a whole] [Ans. (b) Producer's]

6. 'Oikos' means ____ [First Mid-2018] 15. ____ utility derived by having knowledge of a
(a) Police (b) Management particular thing.
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(c) Household (d) All the above (a) Place (b) Time
[Ans. (c) Household] (c) Knowledge (d) Service
[Ans. (c) Knowledge]
7. 'Nomos' means ____
(a) Polite (b) Management 16. TR = ____ [BEQ]
(c) Household (d) None of these (a) P + Q (b) P – Q (c) P ÷ Q (d) P × Q

[Ans. (b) Management] [Ans. (d) P × Q]

17. Deductive method is also called as 26. Macro means ____

(a) Analytical method (b) Abstract method (a) Tiny (b) Small
(c) Both 'a' and 'b' (d) None of these (c) Large (d) None of these
[Ans. (c) Both 'a' and 'b'] [Ans. (c) Large]
18. Inductive Method is also called as ____ [BEQ] 27. The scope of ____ covers public expenditure,
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(a) Empirical Method (b) Analytical Method public revenue, public debt and financial
(c) Abstract Method (d) All of these administration.
[Ans. (a) Empirical Method]
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(a) Federal finance (b) Public finance
19. ____ means using up of goods and services. (c) Government (d) None of these
(a) Production (b) Consumption [Ans. (b) Public finance]
(c) Distribution (d) Exchange 28. Environmental economics is a study of inter
s.
[Ans. (b) Consumption] disciplinary tools for the problems of ____
20. Creations of utility or wealth is _____. (a) Ecology (b) Economy
(a) Production (b) Consumption (c) Environment (d) All of these
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(c) Distribution (d) Public finance [Ans. (d) All of these]
[Ans. (a) Production]
21. ____ studies about the pricing of factors of
o PART - B
production. Answer The Following Questions In
(a) Production (b) Exchange One or Two Sentences. 2 MARKS
ab
(c) Distribution (d) Consumption
[Ans. (c) Distribution] 1. What are branches of Economics?[Govt. MQP-2018]
Ans. (i) Consumption
22. General theory of 'Employment Interest and (ii) Production
Money' published in ____ (iii) Exchange
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(a) 1930 (b) 1936 (c) 1988 (d) 1990 (iv) Distribution
[Ans. (b) 1936]
2. What are the various books available in the titles
23. 'The General theory of Employment, Interest and of economics?
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Money' published by ____ [BEQ] Ans. (i) Introductory Economics

(a) Alfred Marshall (b) Adam Smith (ii) Economics an Introduction
(c) Robbins (d) J.M. Keynes (iii) Basic Economics
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[Ans. (d) J.M. Keynes] (iv) Elements of Economics

24. Micro Economics covers ____ (v) Elementary Economics
(vi) Fundamentals of Economics etc.
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(a) Value theory

(b) Theory of economic welfare 3. State four definitions of economics [BEQ]
(c) Both 'a' and 'b' Ans. (i) Smith's Wealth Definition, representing the
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Classical stage.
(d) Income theory
(ii) Marshall's Welfare Defination, representing the
[Ans. (c) Both 'a' and 'b']
Neo-Classical stage.
25. Micro means ____ (iii) Robbin's Scarcity Definition, representing the
(a) Small (b) Big New age, and
(c) Large (d) Aggregate (iv) Samuelson's Growth Definition, representing
[Ans. (a) Small] the Modern age

4. Who criticized Adam Smith's Wealth definition?

Ans. (i) Ruskin and Carlyle criticized economics as a
PART - C
'Dismal science', 'Pig science' etc. Answer The Following Questions In
(ii) As it teaches selfishness which is against ethics. One Paragraph. 3 MARKS
5. What are the major features of Robbins
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1. State any three assumptions of production
definitions? [BEQ]
possibility curve. [First Mid-2018]
Ans. (i) Ends refers to wants. Human beings have
Ans. Assumptions of production possibility curve:
unlimited wants.
(i) The time period does not change. It remains the
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(ii) Means are limited.
same throughout the curve.
(iii) The scarce means time and money are utilized (ii) Techniques of production are fixed.
in alternative uses.
(iii) There is full employment in the economy.
6. Distinguish between free goods and economic 2. What are the important features of Marshall's
s.
goods. Welfare definition? [BEQ]
Ans. Ans. (i) Man promotes primarily welfare and not
Sl. wealth,.
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Economic Goods Free Goods
No. (ii) The science of economics contains the concerns
1 Goods which scarce are Goods that are not of ordinary people who are directed by the
called economic goods. scarce are called free desired to get maximum monetary benefit.
goods.
(iii) Economics is a social science. It studies about
2 Example : Chair, Table Example : Air and
etc.
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Sunshine. people in the society who influence one another.
7. Distinguish between consumer goods and capital 3. Examine the major implications of samuelson
ab
goods. growth definition.
Ans. Ans. (i) Samuelson states that the means are scarce so
Sl. such means could be put to alternative uses.
Consumer Goods Capital Goods (ii) He makes his definition dynamic by including
No.
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1 Consumer goods Goods do not satisfy the element of time.

directly satisfy human consumer directly are (iii) His definition is applicable only in a barter
wants called capital goods.
economy, where money is not used.
2 Example : T.V. Example : Machines
(iv) Samuelson treats economics as a social science,
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8. What are the classification of services? where as Robbins regards science of individual
Ans. (i) Intangible behaviour.
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(ii) Heterogeneous 4. Distinguish between particular equilibrium and

(iii) Inseparable from their makers general equilibrium.
(iv) Perishable Ans. Particular Equilibrium :
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An equilibrium pertains to a single variable may be

9. What is market? (or) Write a brief note on
called particular equilibrium.
the term market in economics. [First Mid-2018]
General Equilibrium :
Ans. (i) Market means a place or geographical area,
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where buyers and sellers meet together. An equilibrium relates to numerous variables or even
(ii) Buyers and sellers who involve in the transaction the economy as a whole is called general equilibrium.
of goods and services. 5. What are the importance of micro economics?
10. What are the methods of analysis? Ans. Micro Economics : [QY-2018]
Ans. (i) Inductive method and (i) Understand the operation of an economy.
(ii) Deductive method (ii) It provides tools for economic policies.

(iii) It examine the condition of economic welfare. For whom to produce?

(iv) Efficient utilization of resources. Every society must also decide how its produce
(v) Useful in international trade. be distributed among the different sections of the
(vi) Useful in decision making society. It must also decide who gets more and
(1) Optimal resources allocation who gets less. It should also decide whether or not
a minimum amount of consumption be ensured for
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(2) Basis for prediction
everyone in the society.
(3) Price determination.
2. Analyse the welfare definition of Alfred Marshall.
PART - D [BEQ] [First Mid-2018]
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Ans. Welfare Definition : Alfred Marshall
Answer The Following Questions in Alfred Marshall (1842-1924) in his book “Principles
About a Page. 5 MARKS of Economics” (1890) defines Economics thus:
“Political Economy” or Economics is a study of
s.
1. Elucidate the basic economic problems. mankind in the ordinary business of life; it examines
that part of individual and social action which is most
Ans. The Economic Problem [BEQ] [First Mid-2018]
closely connected with the attainment and with the use
 Wants, desires, unlimited of the material requisites of well-being. Thus, it is on
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 Resources: Scarce one side a study of wealth; and on the other, and more
- Not Freely available important side, a part of the study of man.”
The important features of Marshall’s definition
 Economic Choice o are:
 Economics
a. Economics does not treat wealth as the be-
- How people use scarce resources to satisfy all and end-all of economic activities. Man
ab
unlimited wants promotes primarily welfare and not wealth.
What and how much to produce? b. The science of Economics contains the concerns
of ordinary people who are moved by love and
Every society must decide on what goods it will
not merely guided or directed by the desire to
produce are and how much of these it will produce. get maximum monetary benefit.
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In this process, the crucial decisions include: c. Economics is a social science. It studies people
a. Whether to produce more of food, clothing and in the society who influence one another.
housing or to have more luxury goods Criticism
b. Whether to have more agricultural goods or to a. Marshall regards only material things. He does
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have industrial goods and services not consider immaterial things, such as the
services of a doctor, a teacher and so on. They
c. Whether to use more resources in education
also promote people’s welfare.
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and health or to use more resources in military

b. In the theory of wages, Marshall ignores the
services amount of money that goes as reward for the
d. Whether to have more consumption goods or to services of ‘immaterial’ services.
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have investment goods c. Marshall’s definition is based on the concept of

e. Whether to spend more on basic education or welfare. But it is not clearly defined. Welfare
varies from person to person, country to country
higher education
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and one period to another. Marshall clearly

How to Produce? distinguishes between those things that are
Every society has to decide whether it will use capable of promoting welfare of people and
labour-intensive technology on capital intensive those things that are not.
technology; that is whether to use more labour and d. However, welfare means happiness or
less more machines and vice versa. comfortable living conditions of an individual
or group of people.

3. Explain the merits of production possibility curve. Y

[BEQ] [QY-2018] Market OP = Price
S
Ans. Merits of production possibility curve : OM = Quantity
E = Equilibrium Price
 The problem of choice E
Price
 The Notion of Scarcity
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 Solution of central problems
D
1. The problem of choice :
The problem of choice arise because of the
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given limited resources and unlimited wants, O M X
Quantity demanded & supplied
may relate to the allocation of resources
between the goods for the higher income group (vi) Equilibrium = Demand equal to supply
and the lower income group and the goods for (vii) Equilibrium means state of rest or balance.
s.
the defense and the civilians.
5. Examine Adam Smith's Definition of Economics.
2. The Notion of Scarcity :
Ans. (i) Adam Smith (1723 - 1790) in his book "An
We can explain the notion of scarcity with
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Inquiry into Nature and Causes of Wealth of
the help of PPC. We know that every society
Nations" (1776) defines "Economics as the
possesses only a specific amount of resources,
science of Wealth".
which can produce only limited amount of
(ii) He explains how a nation's wealth is created
output even with the help of best technology,
and increased.
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Economic scarcity of best fact of life.
(iii) He considers that the individual in the society
3. Solution of central problems :
ab
The central problems of an economy can be wants to promote his own gain and led by an
"invisible hand".
explained with the help of PPC. The solution
of problem of what to produce involves the (iv) He status that every man is motivated by his self
decision regarding the choice of location on the interest.
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production possibility carves.

(v) Severe competition in factories and the society
4. Explain the stable equilibrium with the help of
help in bettering the product.
diagram.
Ans. (i) Prof. Stigler states that "equilibrium is a position Criticism :
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from which there is no net tendency to move". (i) Economics consists of wealth - getting
(ii) Its referred to as disequilibrium. activities and wealth - spending activities.
(iii) Consumer's equilibrium occurs when he gets
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(ii) He ignore human welfare as an essential

maximum satisfaction. part of economics.
(iv) The equilibrium of the producer occurs when he
(iii) Smith gives his definition when religious
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get maximum profit.

and spiritual values are held high.
(v) Thus static equilibrium is based on given
and constant prices, quantities, income, (iv) Ruskin and Carlyle criticized economics
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technology, population etc. as a 'dismal science'. 'pig science' etc.
  

2 Consumption Analysis
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s.
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CHAPTER SNAPSHOT
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Consumption Analysis 2.10 Ordinal Analysis
2.1 Introduction 2.11 An Indifference Curve
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2.2 Human Wants 2.12 An Indifference Map
2.3 Characteristics of Human wants 2.13 Diminishing Marginal Rate of
2.4 Classification of Goods Substitution
2.5 Cardinal Utility Analysis 2.14 Properties of the Indifference curves
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2.6 The Law of Equi - Marginal utility 2.15 Price line or Budget line
2.7 Consumer's Surplus 2.16 Consumer Equilibrium
2.8 Law of Demand 2.17 Conclusion
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2.9 Elasticity of Demand

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w
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[16]

w CONCEPT MAP
CONSUMPTION ANALYSIS
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.s
Human Wants Classification of Cardinal utility Law of Demand Elasticity of Demand
Goods Analysis
Characteristics
Types of Elasticity of
Characteristics Necessaries The Law of Demand Function Demand
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Diminishing
Marginal Utility Law of Demand
Wants are unlimited Comforts Levels or Degrees

➠ Chapter 2 ➠ Consumption Analysis
Determinants of of price Elasticity of

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Demand Demand
Wants become habits Luxuries The Law of
Equi - Marginal
o Utility
Exceptions to the Determinants of
Wants are satiable Law of demand Elasticity of Demand
Reasons for
Wants are Alternative Measurement of
Exceptional
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Elasticity of Demand
Demand Curve
Wants are competitive Extension and Importance of
contraction of Elasticity of Demand
s.
Demand
Wants are complementary
Movement along
demand curve
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Wants are Recurring
PH: 9600175757 / 8124201000 / 8124301000

Shift in the m
demand curve
17
18 Sura’s  XI Std - Economics ➠ Chapter 2 ➠ Consumption Analysis
IMPORTANT TERMS
Characteristics of : Man is a bundle of desires. There is no limits to human wants. If one set of
wants wants are fulfilled, immediately another set of want would be felt.
m
Classification of : Wants are classified into three categories. viz necessories, comforts and luxuries.
wants
Utility : "Utility" means 'usefulness', In economics utility is defined as the power of a
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commodity or a service to satisfy human wants.
Law of Diminishing : The Law of diminishing marginal utility explains an ordinary experience of a
Marginal Utility consumer.
Law of Equi- : The law of equi-marginal utility explains the behaviour of a consumer when he
s.
Marginal Utility consumes more than one commodity.
Cardinal Utility : It involves the use of measurable (cardinal) utility to study consumer behaviour.
Analysis It is otherwise known as Marginal (or) Marshallian Utility Analysis.
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Ordinal Utility : Ordinal Utility approach means that the utility can eb ranked qualitatively.
Analysis
Marginal Utility : Marginal Utility is the addition made to the total utility by consuming one
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more unit of a commodity.
MUn = TUn – TUn–1
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Total Utility : Total Utility refers to the sum of utilities of all units of a commodity consumed.
Average Utility : Average Utility is nothing but utility derived by per unit of consumption
TU
AU =
Q
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Indifference Map : Indifference Map is a group of indifference curves for two commodities
showing different levels of satisfaction.
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Budget Line : It represents the various amounts the consumer can buy with his income; it is
also known as the price - ratio line or simply the price line.
Consumer : The consumer gets the maximum possible satisfaction from his given income is
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Equilibrium called consumer equilibrium.

Revealed Preference : Revealed Preference theory regards utilities to be merely comparable and not
quantifiable.
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Law of Demand : The law of demand states that there is a negative (or) inverse relationship
between the price and quantity demanded of a commodity over a period of
time.
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Demand : Demand for a commodity refers to backed by ability to pay and willingness to
buy it.
Exception to the law : There are certain peculiar cases in which the law of demand will not hold good.
of demand In those cases, more will be (demanded at higher price) less will be demanded
at lower price.

Sura’s  XI Std - Economics ➠ Chapter 2 ➠ Consumption Analysis 19
Veblen Effect : Veblen has pointed out that there are some goods demanded by very rich
people for their social prestige.
Giffen Paradox : Sir Robert Giffen discovered that the poor people will demand more of inferior
goods if their prices rise and demand less if their prices fall.
Elasticity of : The concept of elasticity of demand measures the rate of change in demand.
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Demand
Indifference Curve : An indifference curve is the locus of different combination of two commodities
Approach giving the same level of satisfaction.
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Budget Line : Budget line is a line showing difference combinations of two goods which a
consumer can attain at his given income and market price of the goods.
Demand Schedule : The tabular presentation of price and quantity demand is called the demand
schedule.
s.
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Law of Diminishing
Marginal Utility
:
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According to Marshall "The additional benefit which a person derives from a
given increase of his stock of a thing diminishes with every increase in the stock
that he already has".
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Law of Equi- : In the words of Prof. Marshall, "If a person has a thing which can be put to
Marginal Utility several uses, he will distribute it among these uses in such a way that it has the
same marginal utility in all".
Consumer's Surplus : Marshall defines consumer's surplus as follows :
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"The excess of price which a person would be willing to play rather than go
without the thing, over that which he actually does pay is the economic measure
of this surplus of satisfaction. It may be called consumer's surplus.
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Define Utility : According to Prof. Waugh "Utility is the power of commodity to satisfy human
wants".
Define Revealed : Samuelson is revealed preference theory as "Behaviourist Ordinalist". The
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Preference Theory description "Behaviourist Ordinalist".

Define Elasticity of : According to Alfred Marshall "the elasticity (or responsiveness) of demand in
Demand a Market is great or small according as the amount demanded increases much
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or little for a given fall in price, and diminishes much or little for given rise in
price".
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ANSWERS
Model Questions 8. The concept of consumer's surplus is associated
m
with [BEQ]
(a) Adam Smith (b) Marshall
PART - A (c) Robbins (d) Ricardo
[Ans. (b) Marshall]
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Multiple Choice Questions
9. Given potential price is Rs. 250 and the actual
1. Pick the odd one out [BEQ] [First Mid-2018; HY-2018] price is Rs. 200 find the consumer surplus.
(a) Luxuries (b) Comforts (a) 375 (b) 175 [First Mid-2018]
(c) Necessaries (d) Agricultural goods (c) 200 (d) 50
s.
[Ans. (d) Agricultural goods] [Ans. (d) 50]
2. Choice is always constrained or limited by the
10. Indifference curve approach is based on [QY-2018]
____ of our resources.
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(a) Ordinal approach
(a) Scarcity (b) Supply
(c) Demand (d) Abundance (b) Cardinal approach
[Ans. (a) Scarcity] (c) Subjective approach
3. The chief exponent of the cardinal utility approach (d) Psychological approach
[Ans. (a) Ordinal approach]
was
(a) J.R. Hicks
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[Govt. MQP-2018; QY-2018]
(b) R.G.D. Allen 11. The concept of elasticity of demand was
(c) Marshall (d) Stigler
ab
introduced by [BEQ]
[Ans. (c) Marshall] (a) Ferguson (b) Keynes
4. Marginal utility is measured by using the formula (c) Adam Smith (d) Marshall
of [BEQ] [First Mid-2018] [Ans. (d) Marshall]
(a) TUn – TUn–1 (b) TUn – TUn+1
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12. Increase in demand is caused by

(c) TUn + TUn+1 (d) TUn – TUn+1
(a) Increase in tax [First Mid-2018; QY-2018]
[Ans. (a) TUn – TUn–1] (b) Higher subsidy
5. When marginal utility reaches zero, the total (c) Increase in interest rate
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utility will be
(d) decline in population
(a) Minimum (b) Maximum [Ans. (b) Higher subsidy]
(c) Zero (d) Negative
[Ans. (b) Maximum] 13. The movement on or along the given demand
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curve is known as ____

6. Gossen's first law is known as
(a) extension and contraction of demand
(a) Law of Equi-Marginal Utility
(b) shifts in the demand
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(b) Law of Diminishing Marginal Utility

(c) Law of Demand (c) increase & decrease in demand
(d) Law of Diminishing returns (d) all the above
[Ans. (a) extension and contraction of
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[Ans. (b) Law of Diminishing Marginal Utility]

demand]
7. The basis for the law of demand is related to
(a) Law of Diminishing Marginal Utility 14. In case of relatively more elastic demand the
(b) Law of Supply shape of the curve is
(c) Law of Equi-Marginal Utility (a) Horizontal (b) Vertical
(d) Gossen's Law (c) Steeper (d) Flatter
[Ans. (a) Law of Diminishing Marginal Utility] [Ans. (d) Flatter]

15. A consumer is in equilibrium when marginal 22. Mention the classifications of wants.
utilities from two goods are Ans. Goods (or) wants are broadly classified into three
(a) Minimum (b) Maximum categories. They are,
(c) Equal (d) Increasing WANTS
[Ans. (c) Equal]
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16. Indifference curve was first introduced by [BEQ]
(a) Hicks (b) Allen
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(c) Keynes (d) Edgeworth
Necessaries Comforts Luxuries
[Ans. (d) Edgeworth]
17. Elasticity of demand in equal to one indicates 23. Name the basic approaches to consumer
behaviour.
(a) Unitary Elastic Demand
s.
Ans. The basic approaches to consumer behaviour are
(b) Perfectly Elastic Demand (i) Cardinal Approach
(c) Perfectly Inelastic Demand (ii) Ordinal Approach
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(d) Relatively Elastic Demand
24. What are the degrees of price elasticity of demand?
[Ans. (a) Unitary Elastic Demand]
Ans. (i) Perfectly Elastic Demand (Ep = ∞)
18. The locus of the points which gives same level of (ii) Perfectly Inelastic Demand (Ep = 0)
satisfaction is associated with (iii) Relatively Elastic Demand (Ep > 1)
o
(a) Indifference Curves (b) Cardinal Analysis (iv) Relatively Inelastic Demand (Ep < 1)
(c) Law of Demand (d) Law of Supply (v) Unitary Elastic Demand (Ep = 1)
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[Ans. (a) Indifference Curves] 25. State the meaning of indifference curves.
19. Ordinal Utility can be measured by [First Mid-2018]
Ans. 1. An indifference curve is the locus of all
(a) Ranking (b) Numbering combinations of commodities from which the
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(c) Wording (d) None of these consumer derives the same level of satisfaction.
[Ans. (a) Ranking] 2. It is also called “Iso- Utility Curve” or “Equal
Satisfaction Curve”.
20. The indifference curve are [BEQ] [First Mid-2018]
.s
26. Write the formula of consumers surplus.

(a) vertical (b) horizontal Ans. Consumer surplus = what a person is willing to pay
(c) positive sloped (d) negatively sloped – what he actually pay.
[Ans. (d) negatively sloped] (OR)
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Consumer's surplus = Potential price – Actual price.

Mathematically,
PART - B Consumer's surplus = TU – (P × Q)
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TU = Total Utility, P = Price and Q = Quantity of the

Answer The Following Questions In Commodity
One or Two Sentences. 27. What are Giffen goods? Why?[BEQ] [First Mid-2018]
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Ans. (i) The Giffen good or inferior good is an exception

21. Define utility. [BEQ] [QY-2018] to the law of demand.
Ans. (i) Utility, the simple meaning of 'utility is (ii) A Giffen goods is typically an inferior product
usefulness'. that does not have easily available substitutes.
(ii) In Economics utility is the capacity of a (iii) The unique characteristic that an increase in
commodity to satisfy human wants. price actually increases the quantity of the
good that is demanded.

PART - C Consumer Equilibrium

Y
Answer The Following Questions In A
One Paragraph.
28. Describe the feature of human wants.
m
Ans. (i) Wants are Unlimited
(ii) Wants become Habits N T
Tea
(iii) Wants are Satiable
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IC4
(iv) Wants are Alternative IC3
(v) Wants are Competitive IC2
IC1
(vi) Wants are Complementary
(vii) Wants are Recurring 0 M B X
s.
(viii) Wants vary with time, place and person. Coffee
29. Mention the relationship between marginal utility

31. Explain the theory of "Consumer's surplus"
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and total utility. [BEQ] [First Mid-2018; HY-2018]
[First Mid-2018]
Ans. (i) Total utility refers to the sum of utility of all Ans. Consumer surplus was originally introduced by
units of a commodity consumed. classical economists and later modified by Jevons
(ii) Marginal utility is the addition made to the and Jule Dupit, the French Engineer Economist in
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total utility by consuming one more unit of a
1844. But a most refined form of the concept of
Consumer Surplus was given by Alfred Marshall.
commodity.
ab
Definition :
MUn = TUn = TUn–1 According to Alfred Marshall "The excess of a price
which a person would be willing to pay a thing rather
Relationship between marginal utility than go without the thing, over that which be actually
and total utility does pay is the economic measure of this surplus
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Marginal utility Total utility satisfaction. This may be called as consumer's

surplus.
Marginal utility declines. Total utility increases. Assumptions :
Marginal utility Reaches Total utility Reaches (i) Utility can be measured
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zero maximum
(ii) Marginal Utility of money remain constant.
Marginal utility becomes (iii) Taste, income and character of consumer does
Total utility declines.
negative
not change.
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30. Explain the concept of consumer's equilibrium Measurement :

with a diagram. [BEQ] [First Mid-2018] Consumer's surplus = Potential Price – Actual Price
Consumer surplus = TU – (P × Q)
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Ans. (i) The consumer reaches equilibrium at the

32. Distinguish between extension and contraction of
point where the budget line is tangent on the demand.
indifference curve. Ans. (i) The changes in the quantity demanded for
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Consumer Equilibrium = MRSxy = Px/Py a commodity due to the change in its price
(ii) 'T' is the point of equilibrium as budget line AB alone are called 'Extension and Contraction of
Demand".
is tangent on indifference curve IC3 the upper
most. (ii) In other words, buying more at a lower
price and less at a higher price is known as
"Extension and Contraction of Demand"

33. What are the properties of indifference curves? Table 2.4 Demand Schedule
[QY-2018]
Price Quantity Demanded
Ans. (i) Indifference curve must have negative slope.
5 1
(ii) Indifference curves are convex to the origin.
4 2
(iii) Indifference curve cannot intersect
3 3
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(iv) Indifference curve do not touch the horizontal
or vertical axis. 2 4
34. Briefly explain the concept of consumer's 1 5
equilibrium.
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Ans. (i) The consumer reaches equilibrium at the D
point where the budget line is tangent on the
5
indifference curve.
Price in `
(ii) T is the point of equilibrium as budget line AB 4
s.
is tangent on indifference curve IC3 the upper
most. 3
(iii) IC which implies maximum possible level of 2
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satisfaction.
(iv) At equilibrium point, the slope of IC refers to 1 D
MRSxy and the slope of BL refers to ratio of 0 1 2 3 4 5X
price of X to price of Y ie Px / Py
Quantity Demanded (in units)
(v) Therefore MRSxy = Px / Py
o Explanation :-
PART - D (i) The law of demand explains the relationship
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between the price of a commodity and the
Answer The Following Questions in quantity demanded of it.
About a Page. (ii) This law states that quantity demanded of a
35. Explain the law of demand and its exceptions. commodity expands with fall in price and
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[Govt. MQP-2018; First Mid-2018; QY-2018; HY-2018] contracts with rise in price.
Ans. Law of Demand : (iii) The law of demand states that there is an inverse
The Law of Demand was first stated by Augustin relationship between the price and the quantity
Cournot in 1838. Later it was refined and elaborated demanded of a commodity.
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by Alfred Marshall. (iv) X axis represents the quantity demanded and Y

Definitions axis represents the price.
The Law of Demand says as “the quantity demanded
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(v) DD is the demand curve, which has negative

increases with a fall in price and diminishes with a slope i.e., slope downward from left to right.
rise in price”.
Exception to the law of demand :
Assumptions :-
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(i) Normally, the demand curve slopes downwards

(i) The income of the consumer remains constant.
from left to right. But there are some unusual
(ii) The taste, habit and preference of the consumer
demand curves do not obey the law and reserve
remain the same.
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occurs.
(iii) The price of other related goods should not
change. (ii) A fall in price brings a contraction of demand
(iv) No substitute for the commodity. and a rise in price brings an extension of
(v) Demand for the commodity must be continuous. demand.
(vi) No change in the quality of the commodity. (iii) Therefore the demand curve slopes upwards
If there is change in one of these above assumptions from left to right.
the law will not operate. (iv) It is known as exceptional demand curve.

36. Elucidate the law of diminishing marginal utility Table 2.1
with diagram. Number of Total Marginal
Apple Utility Utility
Ans. (i) H.H. Gossen, and Austrian Economist was the
1 20 20
first to formulate this law in Economics in 1854.
2 35 15 (35 – 20)
(ii) Jevons called this law as "Gossen's first law of
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3 45 10 (45 – 35)
consumption".
4 50 5 (50 – 45)
Definition :- 5 50 0 (50 – 50)
Marshall states the law as "the additional benefit
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6 45 –5 (45 – 50)
which a person derives from a given increase of his 7 35 –10 (35 – 45)
stock of a thing, diminishes with every increase in
Y
the stock that he already has".
Q
Assumptions :-
s.
50
(i) The marginal utility of money remains constant. 40
(ii) The consumer should be rational and his aim is
TU / MU
ok
30
to attain maximum satisfaction with minimum
B TU
expenditure. 20
(iii) The units of the commodity must be reasonable
10
in size. C
o
(iv) Uniform in character like weight, quality, taste, 0 1 2 3 4 5 6 7X
Units
colour etc.
ab
Zero Utility MU
(v) Goods must be made continuously at a given Negative Utility
period of time.
(vi) When marginal utility becomes zero, the total
(vi) No change in the taste, habits, preferences,
utility is maximum and when marginal utility
fashions, income and character etc.
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becomes negative, the total utility diminishes.

Explanation :-
37. Explain the law of Equi - marginal utility.
The law of Diminishing Marginal utility states that
[BEQ] [QY-2018]
if a consumer continues to consume more and more
.s
units of the same commodity, its marginal utility (i) The law of diminishing marginal utility extended
diminishes. and is called "Law of equi - marginal utility".
(ii) It is also called 'Law of substitution' 'Law
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Illustrations :-
of consumers equilibrium', 'Gossen Second
(i) Suppose a consumer wants to consume 7 apples
Law' and 'Law of maximum satisfaction'.
one after another.
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Definition :-
(ii) The utility from the first apple is 20.
Marshall defined as "If a person has a thing which
(iii) The second apple will be less than that of first
can put to several uses, he will distribute it among
(say 15), the third less than that of second (say
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these uses in such a way that it has the same marginal

10) and so on, finally the utility from the fifth
utility in all."
apple becomes zero.
Assumption :-
(iv) Utility from sixth and seventh apple are negative
(or) disutility (or) disliking. (i) The consumer is rational so he wants to get
maximum satisfaction.
(v) This tendency is called the "The law of
Diminishing marginal Utility". (ii) The utility is measurable.

(iii) Money remains constant. (vi) If the consumer wants to attain maximum utility
(iv) The income of the consumer is given. he should buy 6 units of Apples and 5 units of
Oranges.
(v) There is perfect competition in the market.
(vi) The prices of the commodities are given. 4 4
ie =
(vii) The Law of diminishing marginal utility 1 1
m
operates. (vii) X - axis represent amount of money spent and
Explanation :- Y - axis represent Marginal Utilities of Apple
(i) Consumer wants to spend his limited income on and Orange.
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Apple and Orange. 38. What are the methods of measuring elasticity of
(ii) He is said to be in equilibrium, only when he demand? [BEQ] [QY-2018]
gets maximum satisfaction with his limited Ans. There are four methods of measuring price elasticity
income. of demand.
s.
(i) The Percentage Method :-
(iii) Marginal Utility of Apple = ∆Q P
Price of Apple (1) EP = ×
∆P Q
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Marginal Utility of Orange
=K (2) This method is also known as ratio
Price of Orange
method.
MU A MU O % ∆Q
ie = =K (3) EP = = %ΔQ = percentage
PA PO
o % ∆P change in demand
(iv) He wants to spend his entire income on Apple %ΔP = percentage change
ab
and Orange. in price
(v) The price of an Apple and Orange is Rs. 1 each. (ii) Total Outlay Method :-
Table (1) Marshall suggested that demand is elastic
or inelastic is to examine the change in
Apple Orange
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total outlay of the consumer.

Units of Total Marginal Total Marginal
commodities utility utility utility utility (2) Total Revenue = Price × Quantity
1 25 25 30 30
(3) TR = P × Q
Quantity Total
.s
2 45 20 41 11 Price Elasticity
Demanded outlay
3 63 18 49 8
4 78 15 (54) 5
150 3 450
}e>1
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}e = 1
5 88 10 58 4 125 4 500
6 92 4 61 3
100 5 500
Y Y }e<1
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75 6 450
M P
B3 (iii) Point (or) Geometrical Elasticity :-
MU of Apple
A1
MU of Apple
B1
(1) The point elasticity of linear demand curve
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A3 is shown by the ratio of the segments of the

line to the right and left of the particular
point.
0 A N B2 B Q
A2 X X (2) The demand curve is a straight line, it is
Units of Apple Units of Orange
said to be linear.
Amount of Money Spent
(3) The demand for a commodity can be elastic
Diagram Explanation in one price and in elastic in another.

Y
Lower segment of the demand
(4) Point elasticity = curve below the given point R ep=α
Upperr segment of the demand
curve above the given point
Upper
ep>1
Segment
m
L Q
Price
ep=1
ep = L = Lower Segment p
U ep<1
S
U = Upper Segment
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Lower Segment ep=0
0 Quantity M X
ADDITIONAL
s.
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PART - A 4. Utility analysis was developed by ____
(a) Alfred Marshall and Adam Smith
[BEQ]
Multiple Choice Questions. 1 MARK (b) Alfred Marshall and Prof. J.R. Hicks
(c) Alfred Marshall and A.C. Pigou
o
1. Given potential price is Rs. 350 and the actual (d) Alfred Marshall and J.K. Easthan
price is Rs. 250 find the consumer surplus. [Ans. (c) Alfred Marshall and A.C. Pigou]
ab
(a) 375 (b) 175 [HY-2018]
5. According to the law of diminishing marginal
(c) 200 (d) 100 utility, the utility from the consumption of each
[Ans. (d) 100] additional unit starts ____
2. The diagram below illustrates 3 possible demand (a) increasing (b) diminishing
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curves for Tea. [Govt. MQP-2018] (c) multiplying (d) none of these
Suppose that Tea and Coffee are substitutes. If the [Ans. (b) diminishing]
price of Coffee increases, which of the following 6. Equi - Marginal Utility means equal marginal
.s
movements will Price utilities derived from the consumption of more

of
represent the Tea than ____
effect of this in A C
(a) four goods (b) three goods
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the market for (c) two goods (d) one good

Tea? E B [Ans. (c) two goods]
(a) A to C. 7. The concept of consumers surplus was introduced
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D3 D1 D2
(b) A to B. by ____
Quantity of Tea (a) Alfred Marshall (b) J.R. Hicks
(c) B to A.
(c) A.C. Pigon (d) J.K. Easthan
(d) B to E. [Ans. (a) A to C.]
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[Ans. (a) Alfred Marshall]

3. Given potential price is Rs.375 and the actual 8. The Indifference curve analysis was presented by
price is Rs.200. Find the consumer surplus. ____
[Govt. MQP-2018] (a) Alfred Marshall (b) J.R. Hicks
(a) 375 (b) 175 (c) 200 (d) 50 (c) A.C. Pigon (d) J.K. Easthan
[Ans. (b) 175] [Ans. (b) J.R. Hicks]

9. The foundation for various other economic law is 18. Human wants have the capacity to get satisfied
____ only ____
(a) Law of diminishing marginal utility (a) Temporarily (b) Wants
(b) Law of equi-marginal utility (c) Comforts (d) None of these
(c) Consumer surplus [Ans. (a) Temporarily]
(d) None of these
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[Ans. (a) Law of diminishing marginal utility] 19. In Marshallian analysis, it is assumed that utility
can be measured quantitatively in terms of units
10. ____ is the other name given for Marshallian These units are called _____ [BEQ]
utility analysis. [BEQ]
(a) Utils (b) Utility
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(a) Total utility
(b) Cardinal utility analysis (c) Luxuries (d) Comforts
[Ans. (a) Utils]
(c) Marginal utility
(d) All of these[Ans. (b) Cardinal utility analysis] 20. ____ is a powerful factor that influence demand.
11. The ____ principle is quite useful in explaining (a) Expenses (b) Price
s.
the "water diamond paradox" (c) Income (d) Commodity
(a) Equi - marginal (b) Marginal utility [Ans. (b) Price]
(c) Utility (d) Total utility
21. ____ does Px denotes.
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[Ans. (a) Equi - marginal]
(a) Demand of a commodity
12. Supply curve is ____
(b) Quantity of the demand
(a) an upward sloping curve
(b) a downward sloping curve (c) Price of a commodity
(c) a horizontal straight line (d) All the above [Ans. (c) Price of a commodity]
(d) a vertical line
o 22. Law of diminishing Marginal Utility assumes the
[Ans. (a) an upward sloping curve] marginal utility of money to be ____.
ab
13. ____ of the following constitute 'demand' in (a) Increasing (b) Decreasing
economics. (c) Constant (d) None of these
(a) A desire to buy (b) A decision to buy [Ans. (c) Constant]
(c) The purchasing power(d) All the above
[Ans. (d) All the above] 23. If the co-efficient elasticity is equal to zero it
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represents ____ supply.

14. Giffen's goods are classified in to ____ and ____
goods. (a) Perfectly elastic (b) Unitary inelastic
(a) Superior (b) Inferior (c) Relatively elastic (d) Perfectly inelastic
(c) Both 'a' and 'b' (d) None [Ans. (d) Perfectly inelastic]
.s
[Ans. (c) Both 'a' and 'b'] 24. A consumer buys two commodities x and y he
15. The term 'ceteris paribus' means ____ would be in equilibrium when ____ [BEQ]
(a) Speculation
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MUx MUy MUx

(b) Other things remaining constant (a) = (b) = MUm
(c) Veblen effect Px Py MUy
(d) Antoine Augustin cournot. Px
(c) MUx = MUy (d) = MUm
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[Ans. (b) Other things remaining constant] Py

Px Px
16. There are ____ kinds of price elasticity of demand.
(a) Two (b) Three (c) Four (d) Five MUx MUy
[Ans. (a) = ]
[Ans. (d) Five] Px Py
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17. A change in the quantity supplied is response to a 25. Higher Indifference curve indicates ____
change in the price is called ____
(a) Higher level of satisfaction
(a) Elasticity of supply
(b) Higher cost
(b) Elasticity of demand
(c) Concept of Elasticity (c) Lower cost
(d) Unitary Elastic of supply (d) Lower level of satisfaction
[Ans. (a) Elasticity of supply] [Ans. (a) Higher level of satisfaction]

26. The point of intersection of demand and supply 3. Define total utility.
curves is known as Ans. It is the sum total of the marginal utilities obtained
(a) Equilibrium (b) Disequilibrium from the consumption of successive units of a
(c) Partially equilibrium (d) General equilibrium commodity.
[Ans. (a) Equilibrium] TU = MU1 + MU2 + MU3 + ...... + MUn or MU
27. Human wants are classified in to 4. Define budget line.
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[BEQ]
(a) Necessaries and Luxuries Ans. Budget line is a line showing different combinations
(b) Luxuries and Comforts of two goods which a consumer can attain at his
(c) Necessaries and Comforts given Income and Market price of the goods.
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(d) Necessaries, Comforts and Luxuries 5. What do you mean by indifference map?
[Ans. (d) Necessaries, Comforts and Luxuries] Ans. Indifference map refers to a set of indifference
curves corresponding to different income levels of
28. The Segment of a demand curve between two satisfaction.
points is called
s.
6. Define budget set. [BEQ]
(a) Straight line (b) Point Ans. It refers to attainable combinations of a set of two
(c) Arc (d) percentage goods at given prices of goods and income of the
[Ans. (c) Arc] consumer.
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7. What is market demand?
PART - B Ans. Market demand means the total quantity of a
commodity that all its buyers are willing to purchase
Answer The Following Questions In at different prices over a given period of time.
One or Two Sentences. 2 MARKS
o 8. When the demand is elastic?
1. Write the criticism of the law of Equi-Marginal Ans. The demand is elastic when percentage change in
ab
Utility. [First Mid-2018] quantity demanded is greater than percentage change
Ans. Criticisms
in its price.
(i) In practise, utility cannot be measured, only be
felt.
PART - C
nswer The Following Questions In
A
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(ii) This law cannot be applied to durable goods.

2. The price of a commodity falls from ₹.50 to ₹.30, One Paragraph. 3 MARKS
resulting in an increase in the purchase of the 1. Name the importance of elasticity of demand.
commodity from 200 units to 220 units. Calculate [First Mid-2018]
.s
the price elasticity of demand. [Govt. MQP-2018]

Ans. Importance of elasticity of demand :
Ans. Solution : (i) Price fixation
(ii) Production
Formula for calculating price
} ∆Q P
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= × (iii) Distibution
elasticity of demand Q ∆P
(iv) International trade
∆Q P (v) Public Finance
= ×
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∆P Q (vi) Nationalization
Q = 200 ∆Q = 20 (220 – 200) 2. What are the assumptions of consumer's surplus?
[BEQ]
P = 50 ∆P = 20 (50 – 30)
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Ans. (i) Cardinal utility of a commodity is measured in

∆Q P money terms.
EP = × (ii) Marshall assumes that there is definite
∆P Q
relationship between expected satisfaction
1 1
20 50 (utility) and realized satisfaction (actual).
= × 4 (iii) Marginal utility of money is constant.
20 200
(iv) Absence of differences in income, taste,
 EP = 0.25 fashion etc.

(v) Independent goods and independent utilities. (2) Human wants multiply with the growth of
(vi) Demand for a commodity depends on its price civilization and development.
alone, it includes other determinants of demand. (ii) Wants become habits :
3. Explain the relationship between price elasticity (1) Wants become habits; for example, when
of demand and slope of a linear demand curve. a man starts reading news paper in the
m
∆p morning, it becomes a habit.
Ans. The slope of a linear demand curve is given as
∆q (2) Same is the case with drinking tea or
(i) While price elasticity of demand is given as chewing pans.
co
(iii) Wants are Satiable :
∆Q P
Ed = ∆P × Q .....(1) (1) Though we cannot satisfy all our wants,
at the same time we can satisfy particular
(ii) Hence, we can write above equation wants at a given time.
(2) When one feels hungry, he takes food and
s.
1 P that want is satisfied.
(iii) (1) as Ed = ×
Slope of Demand Curve Q (iv) Wants are Alternative :
(or)
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There are alternative ways to satisfy a particular
1 P want eg. Idly, dosa or chappathi.
Ed = × .....(ii)
P Q (v) Wants are Competitive :
Q (1) All our wants are not equally important.
(iv) The above equation states that there exist an So, there is competition among wants.
o
inverse relationship between slope of a linear (2) Hence, we have to choose more urgent
demand curve and Price elasticity of demand.
wants than less urgent wants.
ab
4. Write the classification of wants. [BEQ] (vi) Wants are Complementary :
Ans. (i) Necessaries : (1) Sometimes, satisfaction of a particular
Goods which are indispensable for the want requires the use of more than one
human being to exist in the world are called commodity.
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"necessaries" (for example: food)

(2) Example: Car and Petrol, Ink and Pen.
(ii) Comforts :
Goods which are not indispensable for life but to 2. A
consumer’s total utility of apples consumed per
make our life easy, convenient and comfortable day is given below. Derive the marginal utility
.s
are called "comforts". (for example: TV) schedule. Also find out the quantity of apples the
(iii) Luxuries : consumer will purchase in his equilibrium given
Goods which are not very essential but are very that marginal utility of a rupee for him is `8. Price
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costly are known as "Luxuries". (for example: of the apple is `2 per unit. [BEQ] [Govt. MQP-2018]
Jewellery, Diamonds.
Quantity of apple Total Utility
PART - D
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1 20
2 38
nswer The Following Questions in
A 3 54
About a Page 5 MARKS
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4 68
1. Describe the feature of human wants. 5 80
[BEQ] [Govt. MQP-2018] 6 90
Ans. (i) Wants are unlimited :
Solution :
(1)
Human wants are countless in number
and various in kinds. When one want is Mun = Tun – Tun–1
satisfied another want crops up.

Quantity of Marginal (ii) According to indifference curve analysis, a

Total Utility consumer is in equilibrium at a point, where the
Apples Utility slope of the indifference curve is equal to the
1 20 20 slope of budget line.
2 38 (38–20)=18
(iii) Condition of consumer's Equilibrium
3 54 (54–38)=16
m
Px
4 68 (68–54)=14 MRSxy =
Py
5 80 (80–68)=12
(iv) Here, MRSxy = Marginal Rate of substitution
6 90 (90–80)=10
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between good x and y
Marginal Utility of Apples Px
(v) = Price Ratio between good x
1, 2, 3, 4, 5, 6 Py and good y
Price of 2 2 2 2 2 2 ∆Y
(vi) MRSxy= = Slope of indifference curve.
s.
Apple is Rs. 2. ∆X
2 4 6 8 10 12 (vii) At the point of equality between
Px
When the consumer consumes 4 units of apples he MRSxy= = Indifference curve must be
ok
Py convex to the origin.
derives maximum satisfaction for Rs. 8. When the
consumer consumes 4th units of Apple. (viii) It implies that at the point of equilibrium, MRS
Illustration : must be diminishing.
Y
(i) This law can be illustrated with the help of
table.
o B
(ii) Let us assume that the consumer has a given
ab
income of Rs. 8/- He wants to spend this entire f
income (ie. Rs. 8) on Apple. The price of an
Apple is Rs. 2/- each. IC3
Good Y
(iii)
If the consumer wants to attain Maximum Qy e IC2
ur
Utility he can use the following formula.

Marginal Utility of Apple IC1
Price of Apple
.s
Marginal Utility of rupee is Rs. 8

Price of Apple is Rs. 2 0 Qx L X
4
8
w
= Good X
21 Explanation :

 4 units of Apple (i) In the above diagram BL - is Budget line.
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(ii) IC1, IC2, IC3 = set of indifference curves.

Therefore he should buy 4 units of apple to attain
maximum utility. (iii) Consumer is equilibrium at point 'e'. At this
point, BL is tangent to IC2 signifying that
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3. Explain the condition of consumer's equilibrium

using indifference curve analysis. Px
MRSxy =
Ans. (i) In terms of indifference curve analysis, the Py
consumer achieves his optimum choice when
(iv) Consumer will not be in equilibrium at point f
he strikes a balance between what he wishes to
and g because they belong to lower IC.
buy and what he can buy.
  
3 Production Analysis
m
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CHAPTER SNAPSHOT
s.
Production Analysis 3.8 Iso-quants
3.1 Introduction 3.8.1 Definition of Iso-quant
3.2 Features of the Factors of Production 3.8.2 Iso-quant curve
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3.2.1 Land 3.8.3 Iso-quant Map
3.2.2 Labour 3.8.4 Properties of Iso-quant Curve
3.2.3 Capital 3.9 The Iso-cost Line
3.2.4 Organization 3.10 Producer's Equilibrium
3.3 Production Function
o 3.11 Cobb-Douglas Production Function
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3.4 Law of Variable Proportions 3.12 Law of Supply
3.5 Laws of Returns to Scale 3.12.1 Supply Function
3.6 Economies of Scale 3.12.2 Supply Curve
3.6.1 Internal Economies of Scale 3.12.3 Factors determining supply
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3.6.2 External Economies of Scale 3.12.4 Elasticity of supply

3.7 Diseconomies of Scale 3.12.5 Types of Elasticity of supply
3.7.1 Internal Diseconomies of Scale 3.12.6 Factors governing elasticity of
3.7.2 External Diseconomies of Scale supply
.s
3.13 Conclusion
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[31]

32
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w CONCEPT MAP
w PRODUCTION ANALYSIS
.s
Law of Supply
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Features of the Factors Economies of Diseconomies of Iso-quants
of Production Scale Scale
Supply Function
Land
ab
Internal Iso-quant
Internal Diseconomies of Schedule
Economies of Scale
Labour
o Scale Supply Curve
Iso-quant
Capital External External Curve Factors determining
Economies of Scale Diseconomies of
supply
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Scale
Organization Iso-quant Types of Elasticity of
Map supply
s.
Properties of Factors governing
Iso-quant Curve elasticity of supply

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PH: 9600175757 / 8124201000 / 8124301000

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➠ Chapter 3 ➠ Production Analysis
Sura’s  XI Std - Economics ➠ Chapter 3 ➠ Production Analysis 33
IMPORTANT TERMS
Production : Production process creates economic well being.
Factors of : Factors of production mean resources used in the process of production of
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production commodities
Land : Land is a free gift of nature.
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Labour : Labour is the human input in the production process.
Capital : Capital is secondary means of production.
An Entrepreneur : An entrepreneur is a person who combines land, labour and capital in the
production process to earn profit.
s.
Production : Production functions are used to determine the most efficient combination of
functions inputs to product a given amount of output.
Total product : It refers to the total amount of commodity produced by the combination of all
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inputs in a given period of time.
Average product : The average product refers to the average output produced by each input.
Marginal product : Marginal product is nothing but additional made to the total product.
o
Law of variable : Short - run production function which is studies through law of variable
proportion proportion.
ab
Returns to scale : Long-run production function which is explained by returns to scale.
Internal economies : 'Internal economies of scale' are advantages enjoyed within the production unit.
of scale
External economies : Advantages enjoyed by all the firms in the industry are called external
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of scale economies of scale.

Diseconomies of : The diseconomies are the disadvantages arising to firm or an industry or a
scale group of firms due large scale production.
.s
ISO - quant : Iso - quant or Iso product curve represents different combination of two factors
of production that yield the same level of output.
ISO - Cost line : Iso cost line is also called "ISO - expenditure line".
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Supply : Supply means the goods offered for all at a price during specific period of time.
Primary Factors : Land and Labour are naturally given and without them no goods can be
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produced. These are called primary factors.

Derived Factors of : Capital and Organisation are derived from the primary factors of production.
Production These factors are called derived factors of production.
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Organisation (or) : An entrepreneur is a person who combines the different factors of production
Entrepreneurship in the right proportion and initiates the process of production and also bears
the risk involved in it.

34 Sura’s  XI Std - Economics ➠ Chapter 3 ➠ Production Analysis

Definition of : According to J.R.Hicks "Production is any activity diverted to the satisfaction
production of other people" wants through exchange".
m
Definition of labour : Alfred Marshall defines labour as 'the use or exertion of body or mind, partly
or wholly, with a view to secure an income apart from the pleasure derived
from the work.
co
Definition of : According to George J. Stigler production function is the relationship between
production function input of productive services per unit of time & output of production per unit
of time".
s.
Definition of : According to G.Stigler, "As equal increments of one input are added, the inputs
Law of variable of other productive services being held constant beyond a certain point the
proportions resulting increments of product will decrease, i.e., the marginal products will
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diminish.
Definition of capital : Marshall says "Capital consists of all kinds of wealth other than free gifts of
nature, which yield income" Bohm-Bawerk defines it as 'a produced means of
production'.
Definition of ISO - :
o
According to Ferguson, "An ISO-Quant is a curve showing all possible
Quant combinations of inputs physically capable of producing a given level of output".
ab
Definition of Law : "Other things remaining the same, as the price of commodity rises, its supply
of Supply expands and as the price falls, its supply contracts.
Definition : According to the traditional classification, there are four factors of production.
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for factors of They are Land, Labour, Capital and Organisation.

production
.s
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ANSWERS
Model Questions 8. The short-run production is studied through
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(a) The Laws of Returns to scale
PART - A (b) The Law of Variable Proportions

(c) Iso - quants
Multiple Choice Questions.
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(d) Law of Demand
1. The primary factors of production are : [BEQ] [Ans. (b) The Law of Variable Proportions]
(a) Labour and Organisation 9. The long-run production function is explained by
(b) Labour and Capital
(a) Law of Demand
s.
(c) Land and Capital
(d) Land and Labour [Ans. (d) Land and Labour] (b) Law of Supply
(c) Returns to Scale
2. The man-made physical goods used to produce
ok
other goods and services are referred to as (d) Law of Variable Proportions
(a) Land (b) Labour [Ans. (c) Returns to Scale]
(c) Capital (d) Organization
[Ans. (c) Capital] 10. An Iso - quant curve is also known as [BEQ]
(a) Inelastic Supply Curve
3. Formula for calculating AP is [BEQ] [HY-2018]
∆TP ∆TP TP
o TP
(b) Inelastic Demand Curve
(a) (b) (c) (d) (c) Equi Marginal Utility
∆N MP N
ab
N
(d) Equal Product Curve
TP
[Ans. (d) ] [Ans. (d) Equal Product Curve]
N
4. Which factor is called the changing agent of the 11. Mention the economies reaped from inside the
Society firm
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(a) Labourer (b) Land (a) financial (b) technical

(c) Organizer (d) Capital (c) managerial (d) all of the above
[Ans. (c) Organizer]
[Ans. (d) all of the above]
.s
5. Who said, that one of the key of an entrepreneur

is "uncertainty -bearing" [BEQ] 12. Cobb - Douglas production function assumes.
(a) J.B. Clark (b) Schumpeter (a) Increasing returns to scale
(c) Knight (d) Adam Smith (b) Diminishing returns to scale
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[Ans. (c) Knight]

(c) Constant returns to scale
6. The functional relationship between "inputs" and (d) All of the above
"outputs" is called as
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[Ans. (c) Constant returns to scale]

(a) Consumption Function
(b) Production Function 13. Name the returns to scale when the output
(c) Savings Function increases by more than 5% for a 5% increase in
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(d) Investment Function the inputs,

[Ans. (b) Production Function]
(a) Increasing returns to scale
7. In a firm 5 units as factors produce 24 units of
the product. When the number of factor increases (b) Decreasing returns to scale
by one, the production increases to 30 units. (c) Constant returns to scale
Calculate the Average Product (d) All of the above
(a) 30 (b) 6 (c) 5 (d) 24
[Ans. (a) Increasing returns to scale]
[Ans. (c) 5]

14. Which of the following is not a characteristic of
land? [BEQ] [QY-2018]
PART - B
(a) It limited supply (b) It is mobile Answer The Following Questions In
(c) Heterogeneous (d) Gift of Nature One or Two Sentences.
[Ans. (b) It is mobile]
21. Classify the factors of production.
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15. Product obtained from additional factors of Ans. Factors of Production
production is termed as
(a) Marginal product (b) Total product
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(c) Average product (d) Annual product Land Organisation Capital Labour
[Ans. (a) Marginal product]
22. Define Labour.
16. Modern economists have propounded the law of Ans. According to Marshall, labour represents services
(a) Increasing returns (b) Decreasing returns provided by the factor labour, which helps in
s.
(c) Constant returns (d) Variable proportions yielding an income to the owner of the labour-power.
[Ans. (a) Increasing returns] 23. State the production function.
17. Producer's equilibrium is achieved at the point Ans. Production function refers to the relationship among
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where : units of the factors of production (inputs) and the
(a) Marginal rate of technical substitution (MRTS) resultant quantity of a good produced (output).
is greater than the price ratio
24. Define Marginal Product of a factor. [BEQ]
(b) MRTS is lesser than the price ratio
Ans. (i) Marginal product is the addition or the increment
o
(c) MRTS and price ratio are equal to each other made to the total product when one more unit of
(d) The slopes of Iso quant and Iso cost lines are the input is employed.
ab
different
(ii) In other words, it is the ratio of the change in
[Ans. (c) MRTS and price ratio are equal to
the total product to the change in the units of the
each other]
input.
18. The relationship between the price of a commodity (iii) MP = DTP / DN or MPn = TPn – TPn-1
and the supply of commodity is
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(a) Negative (b) Positive 25. What is Iso- cost line?

(c) Zero (d) Increase Ans. (i) The iso - cost line is an important component in
[Ans. (b) Positive] analysing producer's behaviour.
.s
19. If average product is decreasing, then marginal (ii) The iso-cost line illustrates all the possible
product [QY-2018] combinations of two factors that can be used
(a) must be greater than average product at given costs and for a given producer’s budget.
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(b) must be less than average product (iii) It is otherwise called as "Iso-Price line" or
(c) must be increasing "Iso-income line" or "Iso-expenditure line"
(d) both a and c or "Total outlay curve".
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[Ans. (b) must be less than average product] 26. What are conditions for producer's equilibrium?
20. A production function measures the relation [QY-2018]
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between ____. Ans. The two conditions that are to be fulfilled for the
(a) input prices and output prices attainment of producer equilibrium.
(b) input prices and the quantity of output (i) The Iso - cost line must be tangent to iso - quant
(c) the quantity of inputs and the quantity of output curve.
(d) the quantity of inputs and input prices (ii) At point of tangency, the Iso - quant curve
[Ans. (c) t he quantity of inputs and the must be convex to the origin or MRTSLK must
quantity of output] be declining.

27. What are the reasons for upward sloping supply 31. State and explain the elasticity of supply.[QY-2018]
curve? [HY-2018] Ans. (i) Elasticity of supply may be defined as the
Ans. (i) The price of the commodity increases, the degree of responsiveness of change in supply
quantity supply of the commodity is also to change in price on the part of sellers.
increases.
∆QS ∆P ∆QS P
m
(ii) Thus the supply curve has a positive slope from (ii) es = / ; es = ×
QS P ∆P QS
left to right.
(iii) Q = Quantity, P = Price, Δ = Changes.
PART - C
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32. Bring out the relationship among Total, Average
Answer The Following Questions In and Marginal Products. [Govt. MQP-2018]
One Paragraph. Ans. Relationship among Total, Average and Marginal
Products.
s.
28. What are the characteristics of land? Total Marginal Average
Ans. (i) Land is a primary factor of production. Stages
Product Product Product
(ii) Land is a passive factor of production. Stage - I Initially it At the At the first
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(iii) Land is the free gift of nature. increases at begining it instant it
an increasing increases, increases,
(iv) Land has no cost of production.
rate and then then reaches then attains
(v) Land is fixed or inelastic in supply. increases at a maximum maximum.
(vi) Land is permanent. a decreasing and starts to
(vii) Land is immovable.
o rate. decrease.
(viii) Land is heterogeneous as it differs in fertility Stage - II It continues It continues It is equal to
ab
to increase to diminish MP and then
29. What are the factors governing elasticity of at a and becomes begins to
supply? diminishing equal to diminish.
Ans. Factors governing elasticity of supply are rate and zero.
ur
(i) Nature of the commodity reaches

(ii) Cost of production maximum.
(iii) Technical condition Stage - III It It becomes It continues
(iv) Time factor diminishes. negative. to diminish
.s
but always
30. What are the functions of Entrepreneur? [BEQ] greater
Ans. (i) Initiation : than zero
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An organizer is the initiator of the business, (positive).

(ii) Innovation :
33. Illustrate the concept of Producer's Equilibrium.
A successful entrepreneur is always an
Ans. Introduction
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innovator.
(iii) Coordination : (i) Producer equilibrium implies the situation
An organizer applies a particular combination where producer maximizes his output.
of the factors of production (ii) It is also known as optimum combination of the
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(iv) Control, Direction and Supervision : factors of production.

An organiser controls so that nothing prevents (iii) Producer's attain equilibrium (or least cost
the organisation from achieving its goal. combination of factors is attained by the firm)
(v) Risk-taking and Uncertainty-bearing : where the iso-cost line is tangent to an iso
Risks may be insured but uncertainties cannot product curve.
be insured.

Y
Producer's Equilibrium
PART - D
Answer The Following Questions in
P3 About a Page.
N
P2 35. Examine the Law of Variable Proportions with
Unit of capital
m
P1
the help of diagram.
Ans. Definition :
P
According to G.Stigler, As equal increments of
N E one input are added, the inputs of other productive
co
R S
services being held constant, beyond a certain point
IQ(500 Units) the resulting increment of products will decrease,
O M L L1 L2 L3 i.e the marginal products will diminish.
X
Units of labour Assumptions:
(i) Only one factor is variable while others are held
(iv) In the above figure, profit of the firm (or
s.
constant.
the producer) is maximised at the point of (ii) All units of the variable factor are homogeneous.
equilibrium E. (iii) The product is measured in physical units
(v) At the point of equilibrium, the slope of the (iv) No change in the state of technology.
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iso cost line is equal to the slope of iso product (v) No change in the price.
curve. Units of Total Marginal
variable Product Product Average Stages
(vi) Slope of ISO quant curve = Slope of ISO o factor (TPL) (MPL)
cost curve 1 2 2 2
2 6 4 3 I
(vii) At point E, the firm employs OM units of labour 3 12 6 4
ab
and ON units of capital. 4 16 4 4
5 18 2 3.6 II
34. State the Cobb-Douglas Production Function.
[BEQ] [QY-2018; HY-2018] 6 18 0 3
7 16 –2 2.28 III
Ans. (i) The Cobb - Douglas production function
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was developed by charles W.Cobb and Paul (vi) Diagram Explanation :

H. Douglas. The number of worker is measured on, X-axis,
(ii) The production function explains that with the TPL, APL and MPL are denoted on Y-axis.
.s
proportionate increase in the factors, the output Y

also increased in the same proportion.
(iii) It implies constant returns to scale. 18
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16 TPL
(iv) Cobb Douglas production function considered 14 Stage II Stage III
TPL Stage I
only two factors like labour and cpaital. 12
MPL
(v) Labour contributes three-fourth of production APL 10
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and capital contributes one-fourth of production. 8
6
(vi) The elasticity of substitution between the 4
factors is equal to one. APL
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(vii) Q = AL  K 0 1 2 3 4 5 6 7
x
-2
MPL
where, Q = Output; A = Positive constant; Unit Of Variable Factor
Stage - I
K = Capital; L = Labour,  and  are positive
(i) In the first stage MPL increases up to third
fractions showing, the elasticity co-efficients of worker and it is higher than the average product.
output for the inputs. (ii) So that total product is increasing at increasing
rate.

State - II
Y
(i) In the second stage, MPL decreases up to sixth
unit of labour where MPL curve intersects the
x-axis.
(ii) MPL curve is lower than the APL. A
Capital
m
(iii) TPL increases at a decreasing rate. C
300 Units
Stage - III
B
(i) Third stage of production shows that the sixth
100 Units
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unit of labour is marked by negative.
(ii) MPL and APL continues to fall but remains Labour X
positive.
(iii) TPL declines with the employment of more Y
s.
units of variable factor, Labour.
A
36. List out the properties of iso - quants with the K5
help of diagrams. [BEQ] [Govt. MQP-2018]
K4
B
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C
Capital
Ans. (A) Properties of Iso quant curve : K3
D
(i) The Iso - quant curve has negative slope. K2
(ii) It slopes downwards from left to
right indicating that the factors are
substitutable.
o L2
Labour
L3 L5 X
(iii) This explains the Principle of marginal,

ab
rate of Technical Substitution (MRTS KL) (D) An upper - Iso - quant curve represents a
(iv) Constant MRTS (Straight line) and higher level of output:
increasing MRTS (Concave) are also
possible. (i) Higher IQs shows higher output and lower
IQs show lower outputs.
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Diminishing MRTS Constant MRTS Increasing MRTS

Y Y Y
(ii) The upper iso quant curve implies the use
of more factors than the lower of more
factors than the lower iso quant curve.
Capital
Capital
Capital
.s
Y
IQ3
0 0 0
Labour X Labour X Labour X
IQ1
(B) The Iso - quant curve is convex to the origin.
w
(i) This means that factors of production are

Capital
substitutable to each other.

(ii) The capital substituted per unit of labour
w
300 Unit
goes on decreasing when the Iso quant is
100 Unit
convex to the origin.
(C) Non inter-section of indifference curve X
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Labour
(i) For instance, point A lie on the Iso quants
(E) ISO - quant curve does not touch either x
IQ1 and IQ2.
axis or y axis :
(ii) The point C shows a higher output and the No Iso quant touches the X axis or Y axis
point B shows a lower level of output IQ1. because, IQ1, only capital is used and in IQ only
(iii) C = A, B = A, so C = B; But C > B which labour is used.
is illogical.

Y
IQ3
(iii) The law of constant returns to scale is implied
C
IQ1
by the movement from the point b to point c.
(iv) Decreasing returns to scale are denoted by
the movement from the point c to point d since
doubling the factors from 4 units to 8 units.
Capital
38. Explain the internal and external economies of

scale.
m
IQ1 [BEQ]
IQ
Ans. I. Internal economies of scale :
0 L X
(i) Internal economics of scale refers to the
Labour advantage enjoyed by the production
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37. Elucidate the Laws of Returns to scale. Illustrate. unit.
Ans. Laws of return to scale [QY-2018; HY-2018] (ii) For example a firm enjoying the advantage
(i) In the long - run, there is no difference between of an application of most modern
fixed factor and variable factor in the sense that machinery.
all factors are variable. (a) Technical economies : When the
(ii) The Laws of returns to scale explain the size of the firm is large, large amount
s.
relationship between output and the scale of of capital can be used.
inputs in the long run when all the inputs are (b) Financial economies :
increased in the same proportion. (i) Big firms can float shares in the
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Assumptions : market for capital expansion.
(i) All the factors of production are variable but (ii) while small firms cannot easily
organization is fixed. float shares in the market.
(ii) There is no change in technology. (c) Labour Economies :
(iii) There is perfect competition in the market. (i) Large scale production implies
greater and minute division of
(iv) Outputs or returns are measured in physical
quantities.
o labour.
Three Phases of Return to Scale : (ii) This leads to specialisation which
ab
(A) Increasing returns to scale: enhances the quality.
In this case if all inputs are increased by one (d) Managerial Economies :
percent, output increase by more than one Large scale production facilitates
percent. specialisation and delegation.
(B) Constant returns to scale: (e) Marketing Economies :
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In this case if all inputs are increased by one In the context of large scale
percent, output increasing exactly by one production, the producers can both
percent. buy raw - materials at cheaper cost.
(C) Diminishing returns to scale: (f) Economies of survival :
In this case if all inputs are increased by one (i) Product diversification is
.s
percent, output increases by less than one possible when there is large scale
percent. production.
Laws of Returns to Scale (ii) This reduces the risk in
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production.
d
II. External Economies of scale:
8
q=8
(i) External economies of scale refer to
changes, in any factor outside the firm
w
c Decreasing returns to scale

Unit of capital
c
causing an improvement in the production
4 process.
2
b
b Constant returns to scale (ii) These are the advantages enjoyed by
all the firms in the industry due to the
a
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1
a Increasing returns to scale
0 1 2 4 8 Labour
structural growth.
Explanation : (iii) Important external economies of scale are
listed below.
(i) In the above figure the movement from point
'a' to point 'b' represents increasing returns to (1) Increased transport facilities.
scale. (2) Banking facilities.
(ii) It produces more than double from q = 1 to q =3 (3) Development of townships.
when 2 units of labour and 2 units of capital are (4) Development of information and
used. communication.

ADDITIONAL
PART - A 6. ____ said that 'exertion of body or mind' results

in labour.
m
(a) Alfred Marshall (b) Robbins
Multiple Choice Questions. 1 MARK (c) Adam Smith (d) J.M. Keynes
[Ans. (a) Alfred Marshall]
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1. Name the returns to scale when the output 7. Annual income flows are called ____.
increases by 3%, for a 5% increase in the inputs, (a) Annual cost (b) Minimum cost
(a) Increasing returns to scale [Govt. MQP-2018] (c) Annuities (d) Annual income
(b) decreasing returns to scale [Ans. (c) Annuities]
(c) Constant returns to scale
s.
8. ____ is a free gift of nature. [BEQ]
(d) All of the above (a) Land (b) Organisation
[Ans. (b) decreasing returns to scale] (c) Capital (d) All of these
[Ans. (a) Land]
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2. Assertion (A) : An isocost line is a straight line
Reason (R) : The market rate of exchange 9. ____ may be classified in to five kinds.
between the two inputs is constant. (a) External Economies (b) Economies of scale
[Govt. MQP-2018] (c) Internal Economies (d) Modern Economy
(a) Both A and R are true and R is the correct [Ans. (c) Internal Economies]
explanation of A.
o 10. ____ is the other name given for factor of
(b) Both A and R are true but R is NOT the correct
production.
ab
explanation of A
(c) A is true but R is false. (a) Inputs (b) Outputs
(d) A is false but R is true. (c) Exertion (d) Formation
[Ans. (d) A is false but R is true.] [Ans. (a) Inputs]
3. In a firm 6-units of factors produce 30 units of 11. ____ faces both risks and uncertainties. [BEQ]
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the product. When the number of factor increases (a) Entrepreneur (b) Labour
by one, the production increases to 42 units. (c) Land (d) None of these
Calculate the Average Product. [Govt. MQP-2018] [Ans. (a) Entrepreneur]
(a) 30 (b) 6 (c) 5 (d) 24
.s
[Ans. (b) 6] 12. ____ represent Human capital.

(a) Money (b) Efficiency
4. Demand curve can be derived from the law
of diminishing marginal utility on which the (c) Hard work (d) All the above
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following assumptions? [Govt. MQP-2018] [Ans. (a) Money]

(i) Utility can be measured in quantitative terms 13. Education and training given to labour is ____.
(ii) Utility of money is constant (a) money capital (b) human capital
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(a) Only (i) is true (c) physical capital (d) none of the these
(b) Both (i) and (ii) are true [Ans. (b) human capital]
(c) Only (ii) is true
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14. Accumulation of more and more physical capital

(d) Neither (i) nor (ii) is true
is called ____.
[Ans. (b) Both (i) and (ii) are true]
5. ____ is facilitated by transport and communication (a) Physical capital formation
systems. (b) Money capital
(a) Time utilities (b) Place utilities (c) Labour and capital
(c) Form utilities (d) Possession utilities (d) Human capital
[Ans. (b) Place utilities] [Ans. (a) Physical capital formation]

15. Production means overall increase in the creation 23. ____ is the primary factor of production. [BEQ]
of ____. (a) Man (b) Time
(a) Exchange (b) Distribution (c) Money (d) Organisation
(c) Utility (d) Demand [Ans. (a) Man]
[Ans. (c) Utility]
24. ____ attract new customers.
m
16. The technical relationship that obtains between (a) Producer
inputs and outputs is known as
(b) Labour
(a) Factors of production
(c) Successful entrepreneur
(b) Production function
co
(c) Entrepreneurial function (d) None of these
[Ans. (c) Successful entrepreneur]
(d) None of these [Ans. (b) Production function]
25. What is 'Production' in economics?
17. Utility is a ____ subjective.
(a) Social concept (a) Creation / addition to the value of output
s.
(b) Psychological concept (b) Production of food grains.
(c) Political concept (c) Creation of services
(d) Scientific concept (d) Manufacturing of goods
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[Ans. (b) Psychological concept] [Ans. (a) Creation / addition to the value of
output]
18. The long run production is analysed by using two
concept ____ and ____. 26. When total product falls, then ____.
(a) Iso quant, Return to scale (a) Average product is equal to zero
o
(b) Decreasing and Increasing return to scale (b) Marginal product is equal to zero
(c) Increasing and Diminishing returns (c) Marginal product is negative
ab
(d) None of these (d) Average product continues to rise
[Ans. (a) Iso quant, Return to scale] [Ans. (c) Marginal product is negative]
19. Labour means physical ____.
27. In the first stage of law of variable proportions,
(a) Exertion (b) Elastic total product increases at an ____.
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(c) Physical capital formation (d) Entrepreneur (a) Decreasing rate (b) Increasing rate
[Ans. (a) Exertion]
(c) Constant rate (d) Both (a) and (b)
20. Division of labour means ____. [Ans. (b) Increasing rate]
.s
(a) Dividing the process of production

28. At the point of inflexion, the marginal product is
(b) Dividing labours into age groups
____. [BEQ]
(c) Dividing wages to the labour
(a) Increasing (b) Decreasing
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(d) None of these

(c) Maximum (d) Negative
[Ans. (a) Dividing the process of production]
[Ans. (c) Maximum]
21. Bank deposits, shares, debentures and other
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29. MPn = ____.

monetary instruments are called ____.
(a) TPn – TPn–1 (b) TCn – TCn–1
(a) Money capital (b) Human capital
(c) Physical capital (d) None of these TP
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(c) (d) TUn – TUn–1

[Ans. (a) Money capital] Q
[Ans. (a) TPn – TPn–1]
22. ____ cannot be separated from labourer.
(a) Labour (b) Organisation 30. ____ creates utility.
(c) Time (d) Money (a) Consumption (b) Production
[Ans. (a) Labour] (c) Distribution (d) Exchange
[Ans. (b) Production]

31. ____ process creates economic well being. 40. The man behind organizing the business called as
(a) Production (b) Consumption ____.
(c) Public finance (d) Distribution (a) Organizer (b) Entrepreneur
[Ans. (a) Production] (c) Both (a) and (b) (d) None of these
[Ans. (c) Both (a) and (b)]
32. Production is the result of co-operation of ____
m
factors of production. 41. 'A successful entrepreneur is always an
(a) One (b) Two (c) Three (d) Four innovators' who said this? [BEQ]
[Ans. (d) Four] (a) Joseph Schumpeter (b) Marshall
co
(c) Bohm-Bawerk (d) George J.Stigler
33. ____ of production mean resources used in the
[Ans. (a) Joseph Schumpeter]
process of production of commodities.
(a) Features (b) Assumption 42. Production function may be classified into ____.
(c) Factors (d) Distribution (a) One (b) Two (c) Three (d) Four
s.
[Ans. (c) Factors] [Ans. (b) Two]
34. Land and Labour are the ____ factors of 43. TP = ____.
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production. [BEQ] TP
(a) Primary (b) Secondary (a) (b) AP × N
N
(c) Tertiary (d) All of these
[Ans. (a) Primary] ∆TP
(c) (d) TPn – TPn–1
∆N
35. The saved amount is called as ____.
o [Ans. (b) AP × N]
(a) Income (b) Cost
ab
44. AP = ____.
(c) Expenditure (d) Capital
[Ans. (d) Capital] TP
(a) (b) TPn – TPn–1
N
36. ____ is a special form of labour. [BEQ]
(a) Capital (b) Land ∆TP
ur
(c) (d) AP×N

TP
(c) Organisation (d) None of these ∆N [Ans. (a) ]
[Ans. (c) Organisation] N
37. Capital and Organisation are the ____ factors of 45. MP = ____.
.s
production. ∆TP
(a) Primary (b) Secondary (a) (b) TPn – TPn–1
∆N
(c) Tertiary (d) All of these
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(c) Both (a) and (b) (d) None of these

[Ans. (b) Secondary]
[Ans. (c) Both (a) and (b)]
38. Land is subject to ____.
46. Total product increases upto the point where
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(a) Law of Demand marginal product is ____.

(b) Law of Variable Proportion (a) One (b) Two (c) Infinity (d) Zero
(c) Law of Diminishing Returns [Ans. (d) Zero]
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(d) Law of Returns to Scale

47. The tendency of total product to increase at an
[Ans. (c) Law of Diminishing Returns]
increasing rate stop at point "A" this point is
39. ____ is the active factor of production. known as ____.
(a) Labour (b) Land (a) Equilibrium (b) Keynesian cross
(c) Capital (d) None of these (c) Point of inflexion (d) All the above
[Ans. (a) Labour] [Ans. (c) Point of inflexion]

48. All inputs are increased by one percent, output 55. The Cobb-Douglas production function can be
increases exactly by one percent is ____. expressed as ____.
(a) Increasing returns to scale (a) Potential price - Actual price
(b) Constant returns to scale Px
(b) MRTSxy =
(c) Decreasing returns to scale Py
m
(d) All the above (c) Q = AL K
[Ans. (b) Constant returns to scale] (d) + = 1 [Ans. (c) Q = AL K]
49. Economies are broadly divided into ____ types. 56. a + b < 1 is ____.
co
[BEQ]
(a) One (b) Two (c) Three (d) Four (a) Increasing returns to scale
[Ans. (b) Two]
(b) Constant returns to scale
50. Economies of scale ____ the cost of production and (c) Decreasing returns to scale
diseconomies of scale ____ the cost of production. (d) None of these
s.
(a) reduces, increases (b) reduces, reduces [Ans. (c) Decreasing returns to scale]
(c) increases, increases (d) increases, reduces
[Ans. (a) reduces, increases] 57. The degree of responsiveness of change in supply
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to change in price is called ____.
51. The two words 'ISO' and 'quant' are derived (a) Law of supply (b) Elasticity supply
from ____ language. (c) Elasticity demand (d) Production
(a) Latin (b) French [Ans. (b) Elasticity supply]
(c) Greek (d) All the above

o
[Ans. (c) Greek] 58. There are ____ types of elasticity supply.
(a) One (b) Two (c) Three (d) Five
ab
52. The ISO-quant is also called as the ____. [Ans. (d) Five]
(a) Equal product curve
59. Factors governing elasticity supply are ____.
(b) Product indifference curve
(a) Nature of the commodity
(c) Both (a) and (b)
(b) Cost of Production
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(d) None of these [Ans. (c) Both (a) and (b)]

(c) Time Factor
53. The ISO - Quant curve slopes downwards from (d) All the above [Ans. (d) All the above]
left to right due to ____. [BEQ]
(a) Law of Diminishing Marginal Utility (LDMU) PART - B
.s
(b) Marginal Rate of Technical Substitution (MRTS)

(c) Law of Diminishing Marginal Rate Substitution
One or Two Sentences. 2 MARKS
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(d) All the above

[Ans. (b) Marginal Rate of Technical 1. What is factors of production?
Substitution (MRTS)] Ans. (i) The inputs that a firm uses in the production
process are called factors of production.
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54. The Cobb-Douglas Production function was (ii) It includes factor inputs and non factor
developed by ____. inputs.
(a) Charles W.Cobb and Paul H. Douglas
2. What is production?
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(b) E.H. Chamberlin

Ans. (i) Production refers to the creation or addition of
(c) J.M. Keynes value.
(d) Adam Smith (ii) Production is a process of value adding.
[Ans. (a) Charles W.Cobb and Paul H. Douglas] (iii) In other words, production is also defined as the
transformation of input into output.

3. What do you mean by labour According to Karl 11. Draw the diagram for supply curve
Marx? Ans. Law of Supply
Ans. Karl marx says labour is a value and it is the basis for Y
surplus value. S
4. Who is an 'Organizer'? 5 a
m
Ans. (i) The man behind organizing the business is
called as 'Organizer' or 'Entrepreneur' 4 b
(ii) An organiser is the most important factor of
production. 3 c
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Price
5. What are the three phases of Returns to Scale.
Ans. (i) Increasing Returns to scale [BEQ] 2 d
(ii) Constant Returns to scale
(iii) Diminishing Returns to scale 1 e
s.
6. Economies are divided into how many types? S
what are they? [BEQ]
Ans. Economies are broadly divided into two types. They 20 40 60 80 100 X
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are, Commodity x
(1) Internal Economies of scale X – axis represent – Commodity
(2) External Economies of scale Y – axis represent – Price
7. Write the short note on Internal economies of SS – represent – Supply Curve.
scale.
o
Ans. (i) It refers to the advantages enjoyed by the
12. What are the assumptions of Iso-quant curve?
production units. Ans. (i) It is assumed that only two factors are used to
ab
produce a commodity.
(ii) For example, a firm enjoying the advantage of
an application of most modern machinery. (ii) Factors of production can be divided into small
parts
8. What do you mean by Iso-quant? [BEQ]
(iii) Technique of production is constant.
Ans. (i) An Iso-quant curve can be defined as the locus
(iv) Under the given techniques, factors of production
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of points representing various combinations of

two inputs capital and labour yielding the same can be used with maximum efficiency.
output.
(ii) The Iso quant is also called as the "Equal product PART - C
.s
curve" (or) the "Product Indifference curve".

9. Give the formula for elasticity of supply.
One Paragraph. 3 MARKS
∆Q s ∆P
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Ans. es = Q ÷ P ; 1. Mention different stages of returns to scale.

s
[Govt. MQP-2018]
∆Q s P
× ; Labour Capital
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es = Total Product
Qs ∆P (Units) (Units)
Q = Quantity 1 2 4
∆Q s P 2 4 11
 ES = × P = Price
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∆P Q s 3 6 19
Δ = Change
4 8 29
10. What do you mean by law of supply? 5 10 39
Ans. (i) Law of supply is associated with production 6 12 49
analysis. 7 14 57
(ii) It explains the positive (or) direct relationship 8 16 63
between price and quantity supply. 9 18 67

Solution : 5. What are the assumptions of Law of variable
MPn = TPn – TPn–1 proportion. [BEQ]
Ans. (i) Only one factor is variable others are held
Labour Capital Total Marginal
Stages constant.
units units Product Product
(ii) All units of factor are homogeneous.
}
1 2 4 (4–0)=4 Increasing
(iii) The product is measured in physical units.
m
2 4 11 (11–4)= 7 Returns to
scale (iv) No change in the state of technology.
3 6 19 (19–11)=8
}
4 8 29 (29–19)=10
(v) No change in the price.
constant
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5 10 39 (39–29)=10 returns to 6. Distinguish between internal and external
6 12 49 (49–39)=10 scale economies
}
7 14 57 (57–49)=8 Ans.
Decreasing
8 16 63 (63–57)=6 returns to Internal Economies of External Economies of
scale Scale Scale
s.
9 18 67 (67–63)=4
Expansion of the firm Expansion of the industry
2. What are the characteristics of capital. itself
Ans. (i) Capital is man-made.
Lower long run average Benefits most all firms
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(ii) Capital is mobile between places and persons. cost
(iii) Capital is a positive factors of production. Range of economies e.g. Helps to explain the rapid
(iv) Capital's supply is elastic. Technical and Financial growth of many cities.
(v) Capital's demand is a derived demand.
7. Explain Iso-quant map with the help of diagram.
(vi) Capital is durable.
3. Distinguish between Total Product (TP) and
o Ans. (i) An Iso-quant map has different iso-quant curves
representing the different combinations of
Average Product (AP).
ab
factors yielding different levels of output.
Ans. Total Product :
(i) It refers to the total amount of commodity (ii) An Iso-quant is a family of iso-quants
produced by combination of all inputs in a given (iii) More than one iso-quant is called Iso-quant
period of time. map.
(ii) It can be calculated in two ways
ur
Iso-quant Map
TP = AP × N (or) AP = TP / N Y
Average Product : IQ4
(i) It refers to the output per unit of the input IQ3
.s
IQ2
TP IQ1
AP = (or) N
Q
Capital
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(ii) It is the result of the total product divided by the

total output. 400 Unit
4. Illustrate the diagram for law of variable 300 Unit
200 Unit
proportion
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100 Unit
Ans. Y Law of Variable Proportion
X
18 Labour
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16
14 Stage III
TPL
(iv) Higher the Iso-quant denotes higher level of
TPL Stage I Stage II
MPL 12 output and lower the Iso-quant denotes lower

APL 10 level of output.
8
6 8. What are the factors determining supply?

Ans. (i) Price of the commodity.
4
APL
2
0 1 2 3 4 5 6 7 (ii) Price of the other commodity.

x
-2
Unit Of Variable Factor MPL (iii) Price of factors.

(iv) Price expectations.

(v) Technology.
PART - D
(vi) Natural factors. Answer The Following Questions in
(vii) Discovery of new raw materials. About a Page. 5 MARKS
(viii) Taxes and Subsidies.
(ix) Objective of the firm.
m
1. Explain the diseconomies of scale. [BEQ] [QY-2018]
9. What are the assumptions of law of supply? Ans. Diseconomies of Scale :
Ans. (i) No change in the prices of Factors of Production. The diseconomies of the scale are a disadvantage
(ii) No change in the price of capital goods. to a firm or an industry or an organization. This
co
(iii) Natural resources remain the same. necessarily increases the cost of production of a
(iv) Prices of substitutes are constant. commodity or service. Further it delays the speed
(v) No change in technology. of the supply of the product to the market. These
(vi) Climate remains unchanged. diseconomies are of two types :
s.
(vii) Political situations are unchanged. a) Internal Diseconomies of Scale; and
(viii) No change in tax policy. b) External Diseconomies of Scale
Internal Diseconomies of Scale :
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10. Explain the concept of division of labour.
When the scale of production increases beyond
Ans. (i) Division of labour means dividing the process of optimum limit, its efficiency may come down.
production into distinct and several component
External Diseconomies of Scale :
process and assigning each component in the
hands of a labour or a set of labourers, who are
o The term "External diseconomies of scale" refers to
specialists in that particular process. the threat or disturbance to a firm or an industry
(ii) For Example : A tailor stitches maximum of from factor lying outside it. For example a bus strike
ab
four shirt a day in the case of garment exports prevents the easy and correct entry of the workers
firm, it may stitch more than 100 shirts a day. into a firm. Similarly the rent of a firm increases very
much if new economic units are established in the
11. Bring out the differences between short run and
long run production function. locality.
2. What are the Characteristics of Labour?
ur
Ans.
Ans. (i) Labour is the animate factor of production.
Short - run Long - run
Basic for
production production (ii) It is an active factor of production
comparison
function function
(iii) Labour implies several types
Short run Long run
.s
production function production (iv) Labour is perishable

alludes to the time function (v) Labour is inseparable from the labourer
period in which at connotes the time
Meaning (vi) Labour is less mobile between places and
least one factor of period in which
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production is fixed. all the factors of occupations.

production are
variable. (vii) Labour is a means as well as ends
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Law of variable Law of returns to (viii) Labour units are heterogeneous.

Law proportions. scale. (ix) Supply of labour determines its reward
Scale of No change in scale change in scale (x) Individual labour has weak bargaining power.
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production of production. of production.

3. Explain the types of elasticity supply with the help
Changes Does not change.
Factor - ratio of diagram. [BEQ]
Ans. There are five types of elasticity supply. There are,
There are barriers to Firm are free to
entry and the firms enter and exit. (1) Relative Elastic Supply : (ES > 1)
Entry and exit (i) The co-efficient of elastic supply is greater
can shut down but
cannot fully exit. than 1 (ES > 1)

(ii) A unit change in the price causes more s3
ES<1
than one percent change in quantity supply Y
of the commodity.
C
ES>1 s1
Price
Y A
m
C
A
o B D x
Price
co
Quantity Supply
(4) Perfectly Inelastic Supply : (ES = 0)
o B D x (i) The co efficient of elasticity is equal to zero
Quantity Supply (ES = 0)
(ii) A unit change in the price causes no change
s.
(2) Unitary Elastic Supply : (ES = 1) in the quantity supply.
(i) The co-efficient of elastic supply is equal ES=0 s4
Y
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to one (ES = 1)
(ii) A unit change in the price causes an equal
C
change in quantity supply is called elastic
supply. A
Price
ES=1
o
s2
Y
o B D x
ab
C Quantity Supply
A (5) Perfectly elastic supply : (ES = ∝)
Price
(i) The co-efficient of elasticity of supply is

infinity (ES = ∝)
ur
(ii) A unit change in the price causes an infinite

o B D x change in the quantity supply.
Quantity Supply
.s
ES=
(3) Relatively Inelastic Supply : (ES < 1) Y
(i) The co-efficient of elasticity is less than one C
(ES < 1)
w
A s5
Price
(ii) A unit change in the price causes and less

than one percent change in the quantity
supply.
w
o B D x
Quantity Supply
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  

Govt. Model Question Paper - 2018-19
m
with Answer Key
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ECONOMICS
th
11 STD.
s.
Time allowed : 2½ hours Total Marks : 90 Marks
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On 21.08.2018, Model Question Paper is released by the Govt. We have given it along with
Answer Key.
o
ab
Kind Attention to the Students
From this year onwards, blue print system has been abolished.
Please note that questions will be framed from IN-TEXT portions ALSO.
ur
Approximately 20% of the questions will be asked from IN-TEXT portions.

These questions will be based on Reasoning and Understanding of the lessons.
.s
Further, Creative and Higher Order Thinking Skills questions will also be asked. It requires the
students to clearly understand the lessons. So the students have to think and answer such questions.
It is instructed that henceforth if any questions are asked from ‘out of syllabus’, grace marks will
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not be given.
Term Test, Revision Test and Model Exam will be conducted based on the above pattern only.
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Concentrating only on the book-back questions and/or previous year questions, henceforth, may
not ensure to score 100% marks.
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Also note that the answers must be written either in blue ink or in black ink. Avoid using both the
colour inks to answer the questions.
For MCQs, the answers should be written in full. Simply writing (a) or (b) etc. will not get full
marks. You have to write (a) or (b) etc., along with the answer given in the options.
[187]

On 21.08.2018, Model Question Paper is released by the Govt. We have given it along with
Answer Key.
th Govt. Model Question Paper - 2018- 19
11 STD. (With Answer Key)
Time : 2.30 Hours ECONOMICSTotal Marks : 90
m
PART - A [20 × 1 = 20] 6. Demand curve can be derived from the law of
Answer the following questions. diminishing marginal utility on which the following
Choose the best answers
assumptions?
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1. Which of the following is a microeconomics statement? (i) Utility can be measured in quantitative terms
(a) The real domestic output increased by 2.5 percent (ii) Utility of money is constant
last year. (a) Only (i) is true
(b) Unemployment was 9.8 percent of the labour (b) Both (i) and (ii) are true
s.
force last year. (c) Only (ii) is true
(c) The price of wheat declined last year. (d) Neither (i) nor (ii) is true
(d) The general price level increased by 4 percent last 7. The diagram below illustrates 3 possible demand
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year. curves for Tea.
Price
2. Find the odd one out: of
(a) “ An inquiry into the nature and the causes of the
o Tea
Wealth of Nations”
A C
(b) “ Principles of Economics”
ab
(c) “Nature and Significance of Economic Science"
E B
(d) “Ceteris paribus”
3. Consider the PPF diagram below.
Quantity of D3 D1 D2
ur
Gun
35 D
30 A
25
20
B Quantity
Suppose that Tea and Coffee of Tea If the price
are substitutes.
C
15
10
of Coffee increases, which of the following movements
.s
5
will represent the effect of this in the market for Tea?
5 10 20 30 40 50
Quantity of Rice (a) A to C. (b) A to B.
Given the PPF illustrated, what is the opportunity cost (c) B to A. (d) B to E.
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of moving from B to A? 8. In a firm 6- units of factors produce 30 units of the

(a) 5 Gun (b) 10 Rice. product. When the number of factor increases by one,
(c) 5/10 Rice (d) 10/5 Gun. the production increases to 42 units. Calculate the
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Average Product.
4. The chief exponent of the Cardinal utility approach
(a) 30 (b) 6 (c) 5 (d) 24
was
9. Name the returns to scale when the output increases
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(a) J.R.Hicks (b) R.G.D.Allen

by 3%, for a 5% increase in the inputs,
(c) Marshall (d) Stigler
(a) Increasing returns to scale
5. Given potential price is Rs.375 and the actual price is (b) decreasing returns to scale
Rs.200. Find the consumer surplus. (c) Constant returns to scale
(a) 375 (b) 175 (c) 200 (d) 50 (d) All of the above
[188]

11th Std - Economics  Govt. Model Question Paper - 2018 - 19 189
10. Assertion (A) : An isocost line is a straight line 16. The highest rate of tax under GST is ___________
Reason (R) : The market rate of exchange between (a) 18% (b) 24% (c) 28% (d) 32%
the two inputs is constant. 17. Assertion (A) : Industrial policy -1991 initiated
(a) Both A and R are true and R is the correct liberalization of Indian Economy.
explanation of A. Reason (R) : Industrial growth was very slow
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(b) Both A and R are true but R is NOT the correct before 1991.
explanation of A (a) Both A and R are true and R is the correct
(c) A is true but R is false. explanation of A.
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(d) A is false but R is true. (b) Both A and R are true but R is NOT the correct
11. Identify the formula of estimating average variable explanation of A
cost. (c) A is true but R is false.
(d) A is false but R is true.
(a) TC/Q (b) TVC/Q
s.
(c) TFC/Q (d) TAC/Q 18. Identify the year in which National Rural Health
Mission was launched.
12. Match the following and choose the correct answer
(a) 2000 (b) 2005 (c) 2010 (d) 2015
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using the codes given below
19. Which district in TN has the highest sex ratio?
Elasticity Marginal Revenue
(a) Nagapattinam (b) Nilgiris
A. e=1 I. MR -ve
(c) Tiruchy (d) Thanjavur
B. e>1 II. MR =0
C. e<1 III. MR +ve
o 20. If x+y = 5 and x-y= 3 then x =
(a) 4 (b) 3 (c) 16 (d) 8
Code:
ab
PART - B [7 × 2 = 14]
A B C
nswer any seven in which question No. 30 is compulsory.
A
(a) I II III
21. What are branches of Economics?
(b) II III I
22. The price of a commodity falls from ₹.50 to ₹.30,
ur
(c) III I II
resulting in an increase in the purchase of the
(d) I III II
commodity from 200 units to 220 units. Calculate the
13. "Wages as a sum of money are paid under contract by price elasticity of demand.
.s
an employer to a worker for services rendered" –Who 23. Bring out the relationship among Average and
said this? Marginal Products.
(a) Benham (b) Marshall
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24. What is meant by Sunk cost?

(c) Walker (d) J.S.Mill
25. Who is price-taker?
14. The year 1921is known as …..
26. Fill the sex ratio of India.
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(a) Year of small divide

Census Sex ratio
(b) Year of Population Explosion
year (Number of females per 1000 males)
(c) Year of Urbanisation
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(d) Year of Great Divide 1951 ?

2001 ?
15. The objective of the Industrial Policy 1956 was ……..
2011 ?
(a) Develop heavy industries
(b) Develop agricultural sector only 27. Name out the different types of land tenure existed in
(c) Develop private sector only India before independence.
(d) Develop cottage industries only 28. State the meaning of special Economic Zones.

190 11th Std - Economics  Govt. Model Question Paper - 2018 - 19
29. The demand function is given by x = 20 – 2p – p2 PART - D [7 × 5 = 35]

where p and x are the price and the quantity in demand Answer all the questions.
respectively. Find the elasticity of demand for p = 2.5.
41. (a) Compare and contrast various definitions of
30. Find out the names of Indian Economic Idealogists: Economics.
a) “It is not a great misfortune for a state if its (OR)
m
revenues are limited, provided the Expenditure is
(b) A consumer’s total utility of apples consumed
kept within bounds.” per day is given below. Derive the marginal
b) He felt that it was better for India to be poor that utility schedule. Also find out the quantity
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to have thousands of drunkards. of apples the consumer will purchase in his
c) He has focused on the poor, viewing them not as equilibrium given that marginal utility of a
objects of pity requiring charitable hand – outs rupee for him is ₹.8. Price of the apple is ₹ 2 per
unit.
s.
PART - C [7 × 3 = 21] Quantity of apple Total Utility
nswer any seven questions' in which question No. 40
A 1 20
is compulsory.
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2 38
31.
Distinguish between microeconomics and 3 54
macroeconomics. 4 68
32. Distinguish between Price – Maker and Price – Taker?
o 5 80
33. Define opportunity cost and provide an example. 6 90
34. State the meaning of selling cost with an example. 42. (a) Describe the feature of human wants.
ab
35. State the meaning of liquidity preference. (OR)
(b)
Elucidate the law of diminishing marginal
36. Write the V.K.R.V.Rao’s contribution on multiplier
utility with diagram.
concept.
43. (a) List out the properties of iso-quants with the
ur
37. State the reasons for nationalization of commercial help of diagrams.

banks.
(OR)
38. What are the measures taken towards Globalization. (b) If total cost = 10+Q3, find out AC, AVC, TFC,
.s
39. Mention the features of SHGs. AFC when Q=5.

40. Mention different stages of returns to scale. 44. (a) How price and output are determined under
the perfect competition?
Labour Capital
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Total Product (OR)

(Units) (Units)
1 2 4 (b)
Describe briefly the Innovation Theory of
Profit.
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2 4 11
3 6 19 45. (a) Explain features of Indian economy
4 8 29 (OR)
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5 10 39 (b) Describe the performance of any 5- five year

plans in India.
6 12 49
46. (a) Describe the salient features of EXIM policy
7 14 57
(2015 – 2020)
8 16 63
(OR)
9 18 67
(b) ‘The features of Rural Economy are peculiar’-
Argue.

47. (a) Describe the qualitative aspects of population. 22. Solution :

(OR)

Formula for calculating price
elasticity of demand
} =
∆Q P
×
Q ∆P
(b)
Calculate the elasticity of demand for the
demand schedule by using differential calculus
∆Q P
method P = 60 − 0.2Q where price is (i) P = 0, = ×
m
∆P Q
(ii) P = 20, (iii) P = 40
Q = 200 ∆Q = 20 (220 – 200)
P = 50 ∆P = 20 (50 – 30)
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ANSWER
∆Q P
EP = ×
PART - A ∆P Q
1 1
20 50
s.
1. (c) The price of wheat declined last year. = × 4
20 200
2. (d) “Ceteris paribus”
3. (c) 5/10 Rice  EP = 0.25
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4. (c) Marshall 23. Relationship among Average and Marginal Products.
5. (b) 175 Stages Marginal Product Average Product
6. (b) Both (i) and (ii) are true Stage - I At the begining At the first instant
7. (a) A to C.
o it increases,
then reaches a
it increases, then
attains maximum
maximum and
ab
8. (b) 6 starts to decrease
9. (b) decreasing returns to scale Stage - II It continues to It is equal to MP
diminish and and then begins to
10. (d) A is false but R is true. becomes equal to diminish
zero
11. (b) TVC/Q
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Stage - III It becomes It continues to

negative diminish but
12. (b) II III I always greater than
13. (a) Benham zero (positive)
.s
14. (d) Year of Great Divide 24. (i) A cost incurred in the past and cannot be
recovered anymore in future is called as sunk
15. (a) Develop heavy industries
cost.
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16. (c) 28%

(ii)
This is historical but irrelevant for future
17. (a) Both A and R are true and R is the correct business.
explanation of A. 25. (i) A firm under perfect competition is a price
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18. (b) 2005 taker, not a price-maker.

19. (b) Nilgiris (ii)
It takes the price of the product from the
industry.
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20. (a) 4
PART - B 26. Census Sex ratio
year (Number of females per 1000 males)
21. (i) Consumption
1951 946
(ii) Production
2001 933
(iii) Exchange
2011 940
(iv) Distribution

27. (i) The three different types of land tenure existed PART - C
in India before independence. 31.
(ii)
They were Zamindari system, Mahalwari Sl. Micro Economics Macro Economics
No.
system and Ryotwari system.
1 Micro means small Macro means large.
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28. A special economic zone in which business and trade
2 Micro Economics Macro Economics
laws different from the rest of the country sez are is the study concerned with the
located within a country's national borders, and their of individuals economy as a whole.
households, firms etc.
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aims include increased trade, increased investment,
job creation and effective administration. 3 It covers value It is the study of
theory and Theory of aggregates such
29. Solution : economic welfare. as national output,
unemployment and
s.
p dx taxes.
ηd =
x dp
4 Price theory. Income theory.
dx = –2 –2p
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5 Alfred Marshall is J.M. Keynes is the father
dp the father of micro of macro economics.
−p economics.
ηd = (–2–2p)
20 − 2 p − p 2
32.
=
2 p(r + p)
o Sl. Price - Maker Price - Taker
20 − 2 p − p 2 No.
ab
The power in the firm The feature of a firm to
1 to set the price for accept the price fixed in
2(2.5)(1 + 2.5) goods in the market. the industry.
When p = 2.5 =
20 − 2(2.5) − (2.5) 2 2 Firms under A firm under perfect
monopolistic competition is a price
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5(3.5) competition are price taker.

= makers.
20 − 5 − 6.25
33. (i) It refers to the cost of next best alternative use.
17.5
.s
= (ii) In other words, It is the value of the next best

15 − 6.25
alternative.
17.5 (iii) It is also called as 'Alternative cost' or 'Transfer
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= cost'
8.75
For Example :
Ans. = 2
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(i)
A farmer can cultivate both paddy and
sugarcane in a farm land.
30. (a) Valluvar
(ii) If he cultivates paddy the opportunity cost of
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(b) Gandhi paddy output is the amount of sugercane output

(c) Amartyasen given up.
34. (i) From the discussion of 'Product differentiation'.
We can infer that the producer under
monopolistic competition has no incur
expenses to popularise his brand.

(ii) This expenditure involved in selling the product 39. (i)

Self help groups are informal voluntary
is called selling cost. association of poor people.
(iii) According to prof. Chemberlin, selling cost is (ii) Socio - Economic background, up to 20 women
"the cost incurred in order to alter the position come together for the purpose of solving their
common problems through self help and
or shape of the demand curve for a product".
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mutual help.
(iv)
Most important form of selling cost is (iii) The SHGs promotes small saving among its
advertisement. members the amount of `10 to ` 50 a month.
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35. (i) Liquidity preference means the preference of (iv) The savings are kept with a bank.
the people to hold wealth in the form of liquid (v) After saving 6 months, they lend small amount
cash. to their members for interest.
(ii) Other non liquid assets like bonds, securities, (vi)
They are linked with the bank for further
s.
bills of exchange, land, building, gold, etc. assistance under SHG Bank linked program.
36. (i) Rao's examination of the "interrelation between (vii) It is a holistic programme of micro enterprises
covering all aspects of self employment
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investment, income and multiplier in an under
organization of the rural poor.
developed economy (1952).
40. Solution :
(ii) Prof. Rao examined the validity of the keynesian
multiplier in underdeveloped countries.
o MPn = TPn – TPn–1
(iii)
This was his major contribution to macro Labour Capital Total Marginal
Stages
units units Product Product
economic theory.
}
ab
1 2 4 (4–0)=4 Increasing
(iv) Rao was a thinker, teacher, economic adviser 2 4 11 (11–4)= 7 Returns to
and direct policy maker. 3 6 19 (19–11)=8 scale
}
(v) Rao followed the footsteps of his great teacher 4 8 29 (29–19)=10 constant
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J.M. Keynes. 5 10 39 (39–29)=10 returns to

6 12 49 (49–39)=10 scale
37. (i) The main objective of the economic planning
}
7 14 57 (57–49)=8 De-
aimed at social welfare. creasing
8 16 63 (63–57)=6
.s
returns to
(ii)
Before the independence commercial bank 9 18 67 (67–63)=4 scale
were in the private sector.
PART - D
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(iii) These commercial banks failed in helping the

government to achieve social objectives of 41. (a) Marshall's Definition vs. Robbin's Definition
planning. Marshall's Definition Robbin's Definition
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(iv)
Therefore, the government decided to "Economics is the study "Economic is the
nationalize 14 major commercial banks. of man in the ordinary science which studies
business of life." It examines human behaviour as a
38. (i)
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Import liberalization through reduction of that part of individual and relationship between
tariff and non tariff barriers. social action, which is most multiple ends and
(ii) Opening the doors to foreign direct investment. closely connected with the scarce means, which
attainment and with the use have alternative uses".
(iii) Foreign direct investment (FDI) and Foreign of material requisites of well
portfolio Investment (FPI) are some of the being.
measures towards globalization.

Similarities between Robbins & Marshall's Definition. Marginal Utility of Apples

Human Behaviour : 1, 2, 3, 4, 5, 6
(i) Both the definitions are concerned with human Price of 2 2 2 2 2 2
behaviour. Apple is Rs. 2.
(ii)
Marshall's and Robbin's definitions are
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2 4 6 8 10 12
concentrate on optimization.
(iii)
According to Marshall, wealth is the basic When the consumer consumes 4 units of apples he
source of maximisation of material welfare. derives maximum satisfaction for Rs. 8. When the
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Robbins is of the opinion that maximize our consumer consumes 4th units of Apple.
satisfaction by scarce resources.
Illustration :
Differences between Marshall's & Robbins Definition.
(i) This law can be illustrated with the help of table.
s.
Economic activity - Material / Immaterial :
(ii) Let us assume that the consumer has a given
(i) Marshall believes in only material activities
which promote material welfare. income of Rs. 8/- He wants to spend this entire
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income (ie. Rs. 8) on Apple. The price of an
(ii)
Robbins believes in both material and
immaterial activities to tackle the problem of Apple is Rs. 2/- each.
choice. (iii)
If the consumer wants to attain Maximum
Social Science / Natural Science : Utility he can use the following formula.
(i)
o
Marshall economics is a social science.
Marginal Utility of Apple
(ii) Robbins Economics is natural science like
ab
Price of Apple
Physics, Chemistry etc.
Practical / Theoretical :
Marginal Utility of rupee is Rs. 8
(i) Marshall's definition is practical in nature.
(ii) Robbins definition is theoretical in nature. Price of Apple is Rs. 2
ur

4
Welfare / Scarcity : 8
(i) Marshall's definition is based on human =
21
material welfare.
.s
(ii) Robbins definition is based on scarcity  4 units of Apple

resources.
(OR) Therefore he should buy 4 units of apple to attain
w
(b) Solution : maximum utility.

Mun = Tun – Tun–1 42. (a) (i) Wants are unlimited :
w

(1)
Human wants are countless in
Quantity of Marginal
Total Utility number and various in kinds.
Apples Utility
1 20 20 When one want is satisfied another
w
2 38 (38–20)=18 want crops up.

3 54 (54–38)=16 (2)
Human wants multiply with
4 68 (68–54)=14 the growth of civilization and
5 80 (80–68)=12 development.
6 90 (90–80)=10

(ii) Wants become habits : Definition :-

(1) Wants become habits; for example, Marshall states the law as "the additional benefit which
when a man starts reading news a person derives from a given increase of his stock of a
paper in the morning, it becomes a thing, diminishes with every increase in the stock that
habit. he already has".
m
(2) Same is the case with drinking tea Assumptions :-
or chewing pans.
(i) The marginal utility of money remains constant.
co
(iii) Wants are Satiable :
(ii) The consumer should be rational and his aim is
(1) Though we cannot satisfy all our to attain maximum satisfaction with minimum
wants, at the same time we can expenditure.
satisfy particular wants at a given
s.
(iii) The units of the commodity must be reasonable
time.
in size.
(2) When one feels hungry, he takes
(iv) Uniform in character like weight, quality, taste,
ok
food and that want is satisfied.
colour etc.
(iv) Wants are Alternative :
(v) Goods must be made continuously at a given
There are alternative ways to satisfy
period of time.
a particular want eg. Idly, dosa or
chappathi.
o (vi)
No change in the taste, habits, preferences,
fashions, income and character etc.
(v) Wants are Competitive :
ab

Explanation :-
(1)
All our wants are not equally
important. So, there is competition The law of Diminishing Marginal utility states that if a
among wants. consumer continues to consume more and more units
ur
(2)
Hence, we have to choose more of the same commodity, its marginal utility diminishes.
urgent wants than less urgent wants. Illustrations :-
(vi) Wants are Complementary : (i) Suppose a consumer wants to consume 7 apples
.s
(1)
Sometimes, satisfaction of a one after another.
particular want requires the use of (ii) The utility from the first apple is 20.
w
more than one commodity.

(iii) The second apple will be less than that of first
(2) Example: Car and Petrol, Ink and (say 15), the third less than that of second (say
Pen. 10) and so on, finally the utility from the fifth
w
(OR) apple becomes zero.

(b) (i) H.H. Gossen, and Austrian Economist was the (iv) Utility from sixth and seventh apple are negative
w
first to formulate this law in Economics in 1854. (or) disutility (or) disliking.
(ii) Jevons called this law as "Gossen's first law of (v)
This tendency is called the "The law of
consumption". Diminishing marginal Utility".

Table 2.1 (B) The Iso - quant curve is convex to the origin.
Number of Total Marginal (i) This means that factors of production are
Apple Utility Utility
substitutable to each other.
1 20 20
(ii) The capital substituted per unit of labour
2 35 15 (35 – 20)
goes on decreasing when the Iso quant is
m
3 45 10 (45 – 35)
convex to the origin.
4 50 5 (50 – 45)
5 50 0 (50 – 50) (C) Non inter-section of indifference curve
co
6 45 –5 (45 – 50) (i) For instance, point A lie on the Iso quants
7 35 –10 (35 – 45) IQ1 and IQ2.
(ii) The point C shows a higher output and the
Y
point B shows a lower level of output IQ1.
s.
Q
50 (iii) C = A, B = A, so C = B; But C > B which is
40 illogical.
TU / MU
ok
Y
30
B TU
20
10 A
1 2 3 4
oC
5 6 7X
Capital
C
300 Units
0
Units
ab
B
Zero Utility MU
100 Units
Negative Utility
Labour X
(vi) When marginal utility becomes zero, the total Y
utility is maximum and when marginal utility
ur
becomes negative, the total utility diminishes. A

K5
43. (a) (A) Properties of Iso quant curve : K4
B
C
Capital
(i) The Iso - quant curve has negative slope. K3

.s
D
(ii) It slopes downwards from left to right K2
indicating that the factors are substitutable.

w
(iii) This explains the Principle of marginal, L2 L3 L5 X

rate of Technical Substitution (MRTS KL) Labour
(iv) Constant MRTS (Straight line) and

w
increasing MRTS (Concave) are also (D) An upper - Iso - quant curve represents a
possible. higher level of output :
(i) Higher IQs shows higher output and lower IQs
w
Y Diminishing MRTS Y Constant MRTS Y Increasing MRTS show lower outputs.

(ii) The upper iso quant curve implies the use of
more factors than the lower of more factors
Capital
Capital
Capital
than the lower iso quant curve.

0 0 0
Labour X Labour X Labour X

Y Here TFC = 10 (TFC will not change when

IQ3
output changes)
IQ1
TC = 10 + (5)3
TC = 10 + 125
Capital
m
300 Unit TC = 135  135 = 10 + TVC
100 Unit 135 – 10 = TVC
co
X
Labour
125 = TVC
(E) ISO - quant curve does not touch either x axis
TVC = 125, TC = 135  TFC = ?
or y axis :
No Iso quant touches the X axis or Y axis TC = (TFC + TVC)
s.
because, IQ1, only capital is used and in IQ only
labour is used. 135 = x + 125
Y 135 – 125 = 10
ok
IQ3
C
IQ1  TFC = 10
TFC
AFC = TFC = 10, Q = 5
o Q
Capital
10
ab
IQ1 AFC = =2
IQ 5
L
AFC = 2
0 X
Labour
TVC
ur
(OR) AVC = TVC = 125, Q = 5

Q
(b) TC = TFC + TVC
TVC 125
.s
AVC = AVC = =5
Q 5
TFC AVC = 25
AFC =
w
Q
TC
TC AC = TC = 135, Q = 5
AC = Q
Q
w
(i) TC = 10 + Q3. Total cost has two components 135

AC = = 27
TFC and TVC. 5
w
(ii) TFC = is the total fixed cost which does not (or)
change with the level of output.
AC = AFC + AVC
(iii) It is determined by putting the value of Q.
AC = 2 + 25
(iv) Given the total cost function
TC = 10 + Q3 AC = 27
Q = units of output where Q = 5

44. (a)
Under perfect competition take the price (iii)
An innovation is something more than an
(10) from the industry and start adjusting invention.
their quantities produced. Qd = 100 – 5P. At (iv) Innovation includes introduction of new goods,
equilibrium. new method of production, open a new market,
discovery of new raw materials.
m
Qd = Qs Qs = 5 (10)
(v) Innovation is introduced by an entrepreneur.
∴ Qs = 50 (vi) Profit is the reward for dynamic changes in
co
Firm society.
Industry Firm 1
Y
D S
Y
MC Y MC Criticism :
AC AC
E E1 R
Revenue/Cost
(i) This theory ignores the element of risk taking,

12
Loss
10 L 10
Profit L 10 L (AR=MR)
8
B E2
uncertainty and dynamic changes.
s.
S D
o o o x (ii) It does not explain the monopoly profit.
500 50 50
Output Output Output

Normal profit Abnormal=2 x 50=100 Loss=2 x 50=100 45. (a) 1. India has a mixed economy:
ok
SS = Market Supply DD = Market Demand (i) Indian economy is a typical example
AR = Average Revenue AC = Average Cost of mixed economy.
MR = Marginal Revenue MC = Marginal Cost (ii) This means both private and public
(i) The equilibrium of an industry is explained in
o sectors co-exist and function
the first panel. Price is OP smoothly.
ab
(ii) The equilibrium of an industry is obtained at 2. Agriculture plays the key role :
500 units of output.
(i)
Agriculture being the maximum
The second part :
pursued occupation in India,
ur
(i) AC curve is lower than the price line. it plays an important role in its
(ii) The equilibrium condition is achived where economy as well.
MC=MR
(ii) Around 60% of the people in India
.s
(iii) Its total revenue is 50 × 10 = 500 Its total cost

depend upon agriculture for their
is 50 × 8 = 400. Therefore, its total profit is
livelihood. In fact, about 17% of
500 – 400 = 100.
w
our GDP today is contributed by

The third part :
the agricultural sector.
(i) Firm's cost curve is above the price line.
3. An emerging market :
w
(ii) AC > AR Its total revenue is 50 × 10 = 500 Its

total cost is 50 × 12 = 600 Therefore, its total (i)
India has emerged as vibrant
loss is 600 – 500 = 100. economy sustaining stable GDP
w
(OR) growth rate even in the midst of

global downtrend.
(b) (i) According to schumpeter, profits are the reward
for innovation. (ii)
This has attracted significant
(ii) He uses innovation to explain the emergence of foreign capital through FDI and
profit. FII.

4. Emerging Economy : (vi) Sixth Five Year Plan (1980 - 1985) :

Emerging as a top economic giant Poverty eradication and technological self
among the world economy, India bags reliance was the main objective of this plan.
the seventh position in terms of nominal (vii) Seventh Five Year Plan (1986 - 1991) :
m
Gross Domestic Product (GDP) and
The establishment of the self sufficient economy
third in terms of Purchasing Power Parity
opportunities for productive employment.
(PPP).
co
(viii) Eight Five Year Plan (1992 - 1997) :
5. Fast Growing Economy :
The top priority was given to development of
(i) India’s economy is well known for
human resources, employment, education and
high and sustained growth.
public health.
s.
(ii) It has emerged as the world’s fastest
(ix) Ninth Five Year Plan (1997 - 2002) :
growing economy in the year
The main focus of this plan growth with justice
ok
2016-17 with the growth rate
of 7.1% in GDP next to People’s and equity.
Republic of China. (x) Tenth Five Year Plan (2002 - 2007) :
(OR) To double the per capita income of India next
o
(b) The concept of economic planning in India was the 10 years.
ab
limited natural resources are utilized skillfully so as to (xi) Eleventh Five Year Plan (2007 - 2012) :
achieve the desired goals. "Faster and more inclusive growth was the main
(i) First Five Year Plan (1951 - 1956) : aim of this plan".
Agriculture development of the country. (xii) Twelth Five Year Plan (2012 - 2017) :
ur
(ii) Second Five Year Plan (1956 - 1961) : Its main aim is "Faster, more inclusive and
Industrial Development of the country. sustainable growth".
.s
(iii) Third Five Year Plan (1961 - 1966) : 46. (a) The new EXIM policy has been formulated
focusing on increasing in export scenario,
To make the economy independent and to
boosting production and supporting the
w
reach self active position to take off.

concepts like Make in India and Digital India.
(iv) Fourth Five Year Plan (1969 - 1974) :
Salient Features :
w
The two main objectives of this plan growth

(i)
Two new schemes namely "Merchandise
with stability and progressive achievement of
Exports from India Scheme (MEIS)" and
self reliance.
w
"Service Exports from India Scheme (SEIS)"

(v) Fifth Five year Plan (1974 - 1979) : have been introduced.
In this plan top priority was given to agriculture, (ii) Reduce Export obligation by 25% and boot to
next cement industry and mines. domestic manufacture.

(iii) MEIS to promote export of notified goods and (e) Employment :

market.
There exists unemployment, seasonal
(iv) MEIS and SEIS firm will get subsidized office unemployment and under employment in rural
spaces in SEZs. areas.
m
(v) Duty credit scripts to be freely transferable and (f) Poverty :
usable for payments of custom duty, excise duty Poverty is a condition where the basic needs of
and service tax. the people like food, clothing and shelter are
co
not sufficient.
(vi) Online procedure to upload digitally signed
document by CA/CS/Cost accountant are (g) Rural Income :
developed and further mobile app for filling The income of the rural people is not sufficient.
s.
tax, stamp duty has been developed. (h) Dependency :
(vii)
Export obligation period for export items Rural households are dependent on social
ok
related to defence, military store, aerospace and grants and remittances.
unclear energy to 24 months. (i) Inequality :
(viii) Exporter and Importer profile are not required. The distributions of income, wealth and assets
(ix) EXIM policy 2015 - 2020 is expected to double are highly skewed among rural people.
o
the share of India in world trade. (j) Migration :
ab
(OR) Rural people are forced to migrate from
(b) (a) Village is an Institution : villages to urban areas in order to seek gainful
employment.
The village is a primary Institution and it satisfies
47. (a) (a)
Sex Ratio (No. of Female per 1000
ur
almost all the needs of the rural community.

males)
(b) Dependence on Agriculture :
(i)
Balanced sex ratio implies
The rural economy depends much on nature improvement in quality of life of
.s
and agriculture and its allied activities are the female population.
main occupation. (ii)
The sex ratio in Tamil Nadu is
w
(c) List of Rural people : nearing balance with 996 which is

far better compared to most of the
(i) Life styles in villages are very simple.
states and all India level.
w
(ii) Public services like education, housing,

(iii)
Tamil Nadu stands third next to
health and sanitation, transport and
Kerala state and Puduchery Union
communication, banking, roads and
w
Teritory in sex ratio.

markets are limited and unavailable.
(b) Infant Mortality Rate (Mortality before
(d) Population Density : completing 1 year)
Number of persons living per. sq. km. is very (i)
Tamil Nadu is well ahead of
low and houses are scattered in the entire National average and other states in
villages. IMR.

(ii)
According To NITIAAYOG, the
−q dp
IMR is 17 (per 1000) for Tamil hd =
p dq
Nadu is half of national average of
34 as on 2016. −q
ηd = (–0.2)
(c)
Maternal Mortality Rate (MMR) 60 − 0.2q
m
(Mother's death at the time of delivery
0.2q
per 1 lakh) =
60 − 0.2q
(i) Tamil Nadu has a good record of
co
controlling MMR ranking third when q = 0
with 79 (Kerala - 61, Maharashtra - 0.2(0)
67). = =0
60 − (0.2)(0)
(ii) It is against national average of 159
s.
half of national average. when q = 20
0.2 (20)
(d) Life expectancy at birth : ηd =
60 − (0.2) (20)
ok
(i) The average period that a person
may expect to live is called life 4.0
=
expectancy. 60 − 4
(ii) Life expectancy in India still falls 1
2
short of most developed and
o =
4
=
1
developing nations. 56 28 14
14
ab
(iii) The average life expectancy in India
1
is 67.9 years where in Tamil Nadu hd =
14
70.6 years.
(e) Literacy : when q = 40
ur
(i) The literacy rate of Tamil Nadu in 0.2 (40)

ηd =
2011 has increased to 80.33% from 60 − (0.2) (40)
73.45% in the 2001 census.
8
.s
(ii)
Among the males 86.81% are =
60 − 8
literates whereas among the females
2
4
is 73.86% 8 2
w
= =
(OR) 52 26 13 13
(b) Elasticity of demand = η
2
w
dp hd =
ηd = 13
dq
P = 60 – 0.2Q q 0 20 40
w
dp
= –0.2 1 2
dq hd 0
14 13
  

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This is only for Sample Materials

Exhaustive Additional Questions in all Sections.

Govt. Model Question Paper-2018 [Govt. MQP-2018], First Mid-Term Test

[HY-2018] and Board Expected Questions [BEQ] are incorporated at appropriate

Govt. Model Question Paper with Answer Key.

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1.4.2 Economics is an Art and a Science 1.8.1 Micro-Economics

1.5.1 Goods and Services 1.8.5 Developmental Economics

1.5.3 Price 1.8.7 Environmental Economics

1.5.6 Revenue 1.11 Conclusion

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Wealth Definiion : Economics : Its

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Consumption : Consumption deals with the satisfaction of human wants.

Exchange : Exchange is concerned with price determination in different market forms

individuals say households, firms or industries.

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MUST KNOW DEFINITIONS

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TEXTUAL QUESTIONS AND

Model Questions 6. The equilibrium price is the price at which

PART - A (b) Buyers spend their money

10. "Economics is a science" the basis of this

5. Find the odd one out : are equal

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12. A market is 18. Who has given scarcity definition of economic?

(iii) The 'Political Economy' is renamed as

(c) Markets (d) Revenue combined actions of buyers and sellers

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method. higher education

Ans. Economic activities are related to Production,

(i) Consumption : It serves as the starting point

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31. Elucidate different features of services. Sl.

No. 35. Compare and contrast various definitions of

economic decision averages of the entire

consumer etc. investments, etc. business of life." It behaviour as a relationship

as a whole. closely connected with the

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Human Behaviour : Exchange :

1. All human activities related to wealth

2. Production, consumption and capital

(ii) It serves as the starting point of economic

behaviour of the consumer, the diminishing Efforts

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Production Possibility Schedule : help of given resources and the techniques of

Possibilities production in Production

II 100 23 (vi) Shift of Production Possibility Curve the PPC

thrown in to the production of food, a maximum

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PART - A 8. The term or word 'Economics' comes from ____

(a) Goods (b) Products

 [Ans. (a) The theory as a whole]  [Ans. (b) Producer's]

(c) Household (d) None of these (a) P + Q (b) P – Q (c) P ÷ Q (d) P × Q

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17. Deductive method is also called as 26. Macro means ____

Money' published by ____ [BEQ] Ans. (i) Introductory Economics

 [Ans. (d) J.M. Keynes] (iv) Elements of Economics

(a) Value theory

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4. Who criticized Adam Smith's Wealth definition?

1 Consumer goods Goods do not satisfy the element of time.

(ii) Heterogeneous 4. Distinguish between particular equilibrium and

5. Find the odd one out : are equal

(c) Markets (d) Revenue combined actions of buyers and sellers

[Ans. (a) The theory as a whole] [Ans. (b) Producer's]

(c) Household (d) None of these (a) P + Q (b) P – Q (c) P ÷ Q (d) P × Q

Money' published by ____ [BEQ] Ans. (i) Introductory Economics

[Ans. (d) J.M. Keynes] (iv) Elements of Economics

have investment goods c. Marshall’s definition is based on the concept of

[Ans. (b) Law of Diminishing Marginal Utility]

the market for (c) two goods (d) one good

[Ans. (a) Alfred Marshall]

[Ans. (b) Other things remaining constant] Py

(ii) This law cannot be applied to durable goods.

the price elasticity of demand. [Govt. MQP-2018]