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Class 11 - Economics

Sample Paper - 02 (2023-24)

Maximum Marks: 80

Time Allowed: : 3 hours

General Instructions:

1. This question paper contains two sections:

Section A – Micro Economics

Section B – Statistics
2. This paper contains 20 Multiple Choice Questions type questions of 1 mark each.
3. This paper contains 4 Short Answer Questions type questions of 3 marks each to be answered in 60 to 80 words.
4. This paper contains 6 Short Answer Questions type questions of 4 marks each to be answered in 80 to 100 words.
5. This paper contains 4 Long Answer Questions type questions of 6 marks each to be answered in 100 to 150 words.

Section A
1. Assertion (A): The Ministry of Finance is responsible for preparing the annual budget of the country for which reliable
statistical data of revenue and expenditure is necessary.

Reason (R): Statistical tools are of maximum utility in the governance of the state and formulation of various economic
policies.
a) Both A and R are true and R is the correct explanation of A.
b) Both A and R are true but R is not the correct explanation of A.
c) A is true but R is false.
d) A is false but R is true.
2. Which of the following index numbers is based on the assumption that all the commodities are of equal importance?
a) Weighted index number and Simple index number
b) Simple index number
c) None of the given
d) Weighted index number
3. Suppose the correlation coefficient between heights (as measured in feet) versus weight (as measured in pounds) is 0.40.
What is the correlation coefficient of height measured in inches versus weight measured in ounces? [12 inches = one
foot; 16 ounces = one pound]
a) 0.533
b) 0.40
c) 0.30
d) cannot be determined from information given
4. Find index number for year 2005 taking 2000 as the base year from the following data by simple average of price
relative method:
Commodities A B C D E

Price (2000) (Rs) 100 80 160 220 40

Price (2005) (Rs) 140 120 180 240 40

a) 122.2
b) 154.32

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c) 121.32
d) 135.32
5. Suppose we want to know the average changes in the price of a set of commodities in 2010 with respect to the prices of
same set of commodities in 2008. In this case what will be the base year?
a) 2010
b) 2000
c) 2008
d) None
6. Which is the symbol of the price of the current year?
a) p2
b) p0
c) None of these
d) p1
7. Read the data – It is stated that there are 300 students in art faculty, 400 in commerce faculty and 300 in science faculty
.This data represents which characteristics of statistics
a) Affected by multiplicity of causes
b) Aggregate of facts
c) Numerically expressed
d) None of these
8. The graph of a cumulative frequency distribution is called
a) a line graph
b) None of these
c) a histogram
d) an ogive
Σp q
9. Price index formula P 01
=
1

Σp0 q0
0
× 100 given by:
a) Pearson
b) Paasche's
c) Laspeyre's
d) Fisher
10. Calculate correlation coefficient of the following data:
X 68 75 90 75 50 62 40 35
Y 10 12 14 10 10 13 9 8
a) 0.79
b) 0.77
c) 0.73
d) 0.75
11. In how many groups, different commodities have been divided while constructing the Wholesale Price Index in India?
12. Calculate median from the following data

20, 25, 30, 15, 17, 35, 26, 18, 40, 45, 50

OR

Average daily wages of 50 workers of a factory was Rs.200. Each worker is given a raise of Rs.20. What is the new
average daily wages? Which property of arithmetic mean does the above example point to?

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13. The marks obtained by 25 students in a class are as follows:

22, 28, 30, 32, 35, 37, 40, 41, 43, 44, 45, 45, 48, 49, 52, 53, 54, 56, 56, 58, 60, 62, 65, 68, 69
i. Arrange the above data in the form of a frequency distribution taking class interval. 20-29, 30-39, 40-49, 50-59, 60-
69
ii. Form the less than cumulative frequency distribution also.
14. In a trip, organised by a college, there were 80 people, each of whom paid Rs. 15.50 on an average. There were 60
students, each of whom paid Rs. 16. Members of teaching staff were charged at a higher rate, the number of servants (all
males) were 6 and they were not charged anything. The number of females were 20% of the total and there was only one
female staff member. Tabulate this information.

OR

Construct a histogram for the following frequency distribution.

Marks Obtained Number of Students

1-10 4
11-20 6
21-30 12
31-40 20

41-50 8
51-60 10
15. If you want to know average percentage of class XII students of your school, which method will you use-census or
sample? Justify your choice.
16. Compute Karl Pearson's coefficient of correlation from the following data by direct method.
X 10 12 11 13 12 14 9 12 14 13

Y 7 9 12 9 13 8 10 12 7 13
17. Calculate the mode from the following data.
Marks (Mid-value) 5 10 15 20 25 30 35 40 45

Number of Students 7 13 19 24 32 28 17 8 6

OR

Calculate the median of the following distribution of data.

Class Interval 0-10 10-30 30-60 60-80 80-90
Frequency 5 15 25 8 3
Section B
18. Movement along the supply curve is:
a) change in quantity supplied
b) change in supply and change in quantity supplied
c) Change in quantity demanded
d) change in supply
19. Which of the following illustrates a decrease in the unemployment using the PPC ?

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a) A movement from a point inside the PPC to a point towards the PPC
b) A movement from a point on the PPC to a point inside the PPC
c) A movement down along the PPC
d) A rightward shift of the PPC
20. When both the demand and supply curves shift to indicate an increase in demand and supply in the same proportion:
a) equilibrium price remains unchanged but equilibrium quantity decreases
b) only equilibrium quantity remains unchanged
c) equilibrium price remains unchanged but equilibrium quantity increases
d) only equilibrium price remains unchanged
21. When TR increases at constant rate, MR should be:
a) constant
b) increasing
c) zero
d) decreasing
22. Total cost is the vertical summation of:
a) TFC and TVC
b) AFC and AVC
c) none of these
d) AFC and AVC
23. Assertion (A): Extension of demand is indicated by a movement along the same demand curve.

Reason (R): It means a movement from left to right on-demand curve.

a) Both A and R are true and R is the correct explanation of A.
b) Both A and R are true but R is not the correct explanation of A.
c) A is true but R is false.
d) A is false but R is true.
24. When a firm’s TR< TC, it can still cover its normal profit
a) TRUE
b) None of these
c) Can’t say
d) False
25. If TR = Total Revenue, Q = Quantity of Output, Δ = change, n = number of units of commodity, then MR (Marginal
Revenue) equals:
a) Both  ΔT R

ΔQ
and TRn - TRn-1
b) AR × Q
c) ΔT R

ΔQ
only
d) TRn - TRn-1 only
26. AVC, AFC & ATC are related in a way that
a) AVC - AFC = ATC
b) = ATC
AV C

AF C

c) AVC + AFC =  ATC

d) AVC × AFC = ATC
27. The break-even point for a firm determines the breakeven price. It is
a) Can’t say
b) False
c) None of these
d) 1

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28. How to produce is a complex problem for less developed countries like India. Explain how?

OR

Discuss the concept of opportunity cost with an example.

29. Can there be a positive level of output that a profit-maximizing firm produces in a competitive market at which market
price is not equal to the marginal cost? Give an explanation.

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30. What will be the impact of the following changes in the demand curves of  
i. Coffee when the price of tea falls.
ii. Bajra for a poor person when the income of such person rises.
iii. Diesel if its price is expected to rise in near future.
31. As a producer, how would you adjust your level of output when MR and MC are not equal? Assume that, the price of
your product is constant for you, and the law of variable proportions is operative.

OR

Given below is the cost schedule of a product produced by a firm. The market price per unit of the product at all levels of
output is Rs 12. Using Marginal Cost and Marginal Revenue approach, find out the level of equilibrium output. Give
reasons for your answer.
Output (units) 1 2 3 4 5 6

Average Cost (Rs) 12 11 10 10 10.4 11

32. Law of diminishing marginal utility will operate even if consumption takes place in intervals. Defend or refute.
33. Explain the Law of Variable Proportion with the help of total and marginal physical schedule.
34. Answer the following questions
1. What will be the slope of demand curve under following situations.
a. Perfectly elastic demand
b. Perfectly inelastic demand
c. Unit elastic demand
2. A consumer buys 5 units of good at a price of Rs.4 per unit. When price falls to Rs.3 per unit, he buys 10 units.
Calculate price elasticity of demand.

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Class 11 - Economics

Sample Paper - 02 (2023-24)

Solution

Section A
1. (b) Both A and R are true but R is not the correct explanation of A.

Explanation: The Ministry of Finance is responsible for preparing the annual budget of the country for which reliable
statistical data of revenue and expenditure is necessary. Statistical tools are of maximum utility in the governance of the
state and formulation of various economic policies.
2. (b) Simple index number

Explanation: Simple index numbers grant equal importance to all items no matter what share it has. In other words, it
considers each item to be equal with respect to the given variable.
3. (b) 0.40

Explanation: The formula for calculating the correlation coefficient standardizes the variables, changes in scale or units
of measurement will not affect its value.
4. (a) 122.2

Explanation:  From the below table , ∑ P

611
P01 = = =122.2
n
5

p1
p0 p1 P = × 100
p0

100 140 140

80 120 150
160 180 112

220 240 109

40 40 100

    ∑ P = 611

5. (c) 2008

Explanation: The base year refers to the year to which comparison is made with. We will compare 2010 with 2008 with
respect to prices  
6. (d) p1

Explanation: While calculation index number, p1= Current year value of item with respect to the variable.
7. (b) Aggregate of facts

Explanation: 300 students, 200 students represent a sum, it's, therefore, an aggregate of facts.
8. (d) an ogive

Explanation: An ogive graph plots cumulative frequency on the y-axis and class boundaries along the x-axis. It's very
similar to a histogram.
9. (c) Laspeyre's

Explanation: The Laspeyre's Index is calculated by working out the cost of a group of commodities at current prices,
dividing this by the cost of the same group of commodities at base period prices, and then multiplying by 100.
10. (a) 0.79

Explanation:

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X Y dX dY dX
2
dY
2
dXdY

68 10 18 0 324 0 0
75 12 25 2 625 4 50

90 14 40 4 1600 16 160
75 10 25 0 625 0 0
50 (A) 10 (A) 0 0 0 0 0

62 13 12 3 144 9 36
40 9 -10 -1 100 1 10
35 8 -15 -2 225 4 30

  ∑ 95 6 3643 34 286
N ∑ XY −∑ X ∑ Y
r = 

2 2 2 2
√N ∑ X −(∑ X ) √N ∑ Y −(∑ Y )

8(286)−(95)(6)
 =  = 0.79
2 2
√8(3643)−(95) √8(34)−(6)

11. To measure WPI, commodities are classified into the following categories:

1) Primary goods: It covers both food and nonfood items. These goods are directly obtained from natural resources.

2) Fuels: it includes fuel and related products like coal, petroleum, electricity.

3) Manufactured or Industrial good: it includes machinery, equipment, chemicals, fertilizers, etc. 

12. Since this is an individual series, we have to arrange the values in ascending or descending order. In this case, we are
arranging them in ascending order. 

Calculation of Median

S.No. Values

1 15
2 17
3 18

4 20
5 25
6 26

7 30
8 35
9 40

10 45
11 50
n=11  

Here, a number of items represented by n=11 which is odd. In case of odd number of items, Median = Middle term of the
distribution. The formula is as given below: 

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n+1
∴  Median (M ) =  Size of  ( ) th item
2

11+1
=  Size of  (
2
) th item

=  Size of  (
12

2
) th item

=Size of 6th item

6th item is 26. So, median=26

OR

Increase in wages of each worker =Rs.20 

Total increase in wages = 50 x 20 = Rs.1000

Total wages before increase in wages= 50 x 200 = Rs.10,000

Total wages after increase in wages=10,000+1000=Rs.11,000

11,000
New average wage= 

ΣX
= = Rs. 220
n 50

Thus, the mean wage has increased by Rs.20.

The property of arithmetic mean which is reflected here is that if each observation of a series is increased or decreased
by a constant, say k, then the arithmetic mean of the new series also gets increased or decreased by k. In this case, each
item is increased by 20, so the mean also increases by 20. 

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13. Given the data in individual series, we first convert given data into frequency distribution using tally marks. Now, less
than cumulative frequency is obtained by adding successively the frequencies of all the previous classes including the
class against which it is written. The cumulate is started from the lowest to the highest size.
i. The frequency distribution of given data is shown below
Class Interval Tally Bar Frequency (f)

20-29 || 2
30-39 |||| 4
40-49  ||| 8

50-59  | 6
60-69 5
Total 25
ii. (a)To form cumulative frequency distribution (less than) of the given distribution, the exclusive group will be formed.
Class Interval Exclusive Group Frequency (f)

20-29 19.5-29.5 2
30-39 29.5-39.5 4
40-49 39.5-49.5 8

50-59 49.5-59.5 6
60-69 59.5-69.5 5
Total 25
(b). Cumulative frequency distribution (less than) is given below:
Class Interval  Frequency  Cumulative frequency (cf)

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Less than 29.5 2 2
Less than 39.5 4 4+2=6

Less than 49.5 8 8+6=14

Less than 59.5 6 14+6=20
Less than 69.5 5 20+5=25
14. From the information given in the question, we have

Total participants = 80

Number of students = 60

Number of servants = 6

∴  Number of teaching staff = 80 - (60 + 6) = 14

It is given that the number of female teaching staff = 1

∴  Number of male teaching staff = 14 - 1 = 13

It is also given that the number of females is 20% of the total.

Therefore, total number of females = 80 ×  20% =    = 16. 

80×20

100

Number of female students = 16 - 1 = 15 (since no. of female teaching staff is 1, we deduct that from the total no. of
females to get the no. of female students).

Total contribution = 80 ×  15.50 = Rs. 1240

Contribution from students = 60 ×  16 = Rs. 960

Contribution from teaching staff = 1240 - 960 = Rs. 280

∴  Contribution per head from teaching staff =  = Rs. 20

280

14

Now, this information can be tabulated as below

Sex
Participants Total Contribution Per Head Total contribution
Males Females
Students 45 15 60 16 960

Teaching Staff 13 1 14 20 280

Servants 6 - 6 - -
Total 64 16 80 15.50 1240

OR

First of all, we have convert the given class intervals into exclusive class intervals. The steps for this conversion is given
below:

Step 1. First of all, the difference between the lower class limit of the second class and the upper class limit of the first
class is computed, i.e.,11 - 10 = 1.

Step 2. Then this difference is divided by 2, i.e., 

1
= 0.5
2

Step 3. Then 0.5 is subtracted from the lower class limit and added to the upper class limit of each class to form an
exclusive distribution.

The distribution will now take the following form:-

Marks Obtained Number of Students
0.5-10.5 4

10.5-20.5 6
20.5-30.5 12

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30.5-40.5 20
40.5-50.5 8

50.5-60.5 10

Step 4. The distribution is represented by the given histogram. On the X axis we show marks obtained and on the Y axis
number of students are shown. 

15. In this case, we shall use census method. In making of results, we cannot use sample method as each and every item of
the universe is so relevant that it cannot be missed.Following are the reasons to use census method in case of the given
case:
1. It is possible to enumerate all units of the universe as the size of universe is so small here and can be completed in the
available time.
2. Since, universe here is small,enumeration is much cheaper in terms of time,money and manpower.Moreover, since all
the respondents are literate ,so, there will be less bias and more efficiency in the data collection.
3. Here, we have to arrive at average percentage of class 12th students of the school, we cannot use sample method.It is
because sample is not completely representative of universe and involves sampling error.But, we have to make a
general result here, given universe size is small, it is better to use census method.
16. For calculation purpose: Let, Square of Deviation corresponding to X be (x2 ) and Square of Deviation corresponding to
Y be(y2)

x2  y2
¯¯¯¯ ¯¯¯¯ ¯
¯¯¯ ¯
¯¯¯
X x(X - X ) ,X  = 12 Y y(Y - Y ), Y  = 10 xy

10 -2 4 7 -3 9 6
12 0 0 9 -1 1 0

11 -1 1 12 2 4 -2
13 1 1 9 -1 1 -1
12 0 0 13 3 9 0

14 2 4 8 -2 4 -4
9 -3 9 10 0 0 0
12 0 0 12 2 4 0

14 2 4 7 -3 9 -6
13 1 1 13 3 9 3

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Σ X = 120 Σ x=0 Σ x2 = 24 Σ Y = 100 Σ y=0 Σ y2 = 50 Σ xy = -4

Here, n = 10

¯¯¯¯ ¯
¯¯¯
Mean of X series = (X ) ; Mean of Y - series (Y

ΣX 120 ΣY 100
= = = 12 ) = = = 10
n 10 n 10
−−− −−
2 −−
−
Standard deviation of X series(σ x
) = √
Σx

n
= √
24

10
= √2.4 = 1.55

−−− −−
Σy
2
–
Standard deviation of Y series = √
n
= √
50
= √5 = 2.24

10

Σxy
  = -0.115
−4 −4
∵ r = ∴ r = =
n⋅σx ⋅σy 10×1.55×2.24 34.72

Therefore, Karl Pearson's coefficient of correlation between X and Y is -0.115

Interpretation: There is a low degree of negative correlation between X and Y.
17. Here, the mid-values are given so we need to convert it into continuous series. When middle points are given, we convert
it into exclusive series noting the difference between each midpoint, we get the length of each interval as follows.
Marks Number of Students (f)
2.5-7.5 7
7.5-12.5 13

12.5-17.5 19
17.5-22.5 24
22.5-27.5 32

27.5-32.5 17
37.5-42.5 8
42.5-47.5 6

By inspection, we observe that the modal class is 22.5-27.5 as it has the highest frequency of 32.

∴  l1=225, f1=32, f0=24, f2=28, and c=5

f1 −f0
Now, Mode (M0)=l 1 +
2f −f −f
× c

1 0 2

32−24
= 22.5 + × 5
2×32−24−28

= 22.5 +
8
× 5

64−52

40
= 22.5 +
12

=22.5+3.33

⇒ M0 = 25.83

OR

Class Interval (X) Frequency (f) Cumulative Frequency (cf)

0-10 5 5
10-30 15 20

30-60 25 45
60-80 8 53
80-90 3 56

  n = Σf = 56  

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Here, n=56

n 56
∴ m =  Size of  ( )  th item  = ( ) th item
2 2

28th item

cf just greater than 28 is 45 and the corresponding group is 30-60, hence median class is 30-60.

∴  cf=20, f=25, c=30(60-30) and l1=30

n
−cf

Now, M

2
= l1 + × c
f

28−20
= 30 + ( ) × 30
25

240
= 30 + = 30 + 9.6 = 39.6
25

Therefore, the median of the following distribution of data = 39.6

Section B
18. (a) change in quantity supplied

Explanation: Movement occurs when a change in the quantity supplied is caused only by a change in price.
19. (b) A movement from a point on the PPC to a point inside the PPC

Explanation: A production possibilities frontier can be used to illustrate how the unemployment or misallocation of
resources causes a society to produce fewer goods and services than possible.Points on or inside the PPF are
attainable. Production efficiency is achieved when it is impossible to produce more of one good without producing less
of some other good; i.e., no resources are being wasted.
20. (c) equilibrium price remains unchanged but equilibrium quantity increases

Explanation: When both the demand and supply curves shift to indicate an increase in demand and supply in the same
proportion then equilibrium price remains unchanged but equilibrium quantity increases.
21. (a) constant

Explanation: MR is considered as the rate of TR. When TR increases at constant rate, MR is constant.
22. (a) TFC and TVC

Explanation: Vertical summation is vertically adding up the values of TFC and TVC when TC, TVC and TFC are
measured on the vertical axis.
23. (b) Both A and R are true but R is not the correct explanation of A.

Explanation: The extension of demand is indicated by a movement along the same demand curve. It means a movement
from left to right on-demand curve.
24. (d) False

Explanation: When TR<TC, the firms profit will start declining. The firm can make normal profits when TR=TC or
MR=MC.
25. (a) Both ΔT R
and TRn - TRn-1

ΔQ

Explanation: Both  and TRn - TRn-1 are the formulas of MR. Marginal revenue is the additional total revenue that
ΔT R

ΔQ

will be generated by increasing product sales by one unit.

26. (c) AVC + AFC =  ATC

Explanation: Average total costs is the sum of average fixed cost and average variable cost. Since it is average total cost
it consists of both fixed and variable component of AC. ATC is also called as AC.
27. (d) 1

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28. 'How to produce' is a problem of choice related to the technique of production. Broadly, one is to choose between
'labour-intensive technique' and 'capital intensive technique'. For example, the production of cloth is possible either by
handlooms or by modern machines. Labour intensive technique uses more of labour per unit of capital whereas capital

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intensive technique uses more of capital per unit of labour. In India, labour is abundant in relation to capital. While
focusing on an ideal ratio between labour and capital, so as to obtain the maximum output per unit of input, labour would
remain unutilised or unemployed. Thus, less developed countries like India often face the problem of unemployment
while tackling the problem of 'how to produce'.

OR

The opportunity cost of production of a commodity refers to the cost which the producer has to sacrifice in terms of the
next best alternative which could be produced out of that cost in order to produce every unit of the given commodity. It
refers to the value of a factor in its next best alternative use. If an economy can produce rice 2000 quintals of rice or
4000 quintals of wheat with the given resources and the economy chose to produce wheat then the opportunity cost will
be 2000 quintals of rice which the economy has sacrificed.
29. There cannot be any positive level of output that the firm produce at which price is not equal to MC. As long as the cost
of producing another unit remains less than the revenue received from the sale of an additional unit, a producer won’t
wander away from his path of earning profits. MR is the addition to TR from the sale of one more unit. MC is the
addition to TC when an additional unit is produced. Thus when MR=MC, TR-TC becomes maximum for maximum
profit. Let us evaluate the following two cases where the price is not equal to MC.

Case A: If P > MC

At output Oq1, Price is Kq1, while the MC is Lq1. So, Oq1 is not the profit-maximizing output. This is due to the fact
that the firm can increase its profit level by expanding its output to Oq2.

Case B: If P < MC

At output Oq3, the price is Hq3 and MC is Gq3. So, Oq3 is not the profit-maximizing output. This is because the firm can
increase its profit by reducing its output level to Oq2.

Thus, at the profit-maximizing point, the price must be equal to MC and it cannot be greater or lesser than MC.
30. i. The demand curve of coffee will shift towards left with fall in the price of tea as tea and coffee are substitute goods.
Coffee will become relatively costly as compared to tea.
ii. The demand curve of Bajra for a poor person will shift towards left as with the increase in income, the poor person
will shift from bajra to other superior goods like wheat or rice. Here bajra is an inferior good, so it has an inverse
relationship with income of the consumer.
iii. The demand curve of diesel will shift towards the right as expectation of price rise in future will increase the demand
of diesel.
31. Constant price means AR is constant. If AR is constant, AR = MR. Both AR and MR are, therefore, indicated by a
horizontal straight line, parallel to X-axis. When the law of variable proportions is operative, the MC curve tends to be
U-shaped. MC tends to decline corresponding to increasing returns, and it tends to rise corresponding to diminishing
returns.

As a producer, I will strike my equilibrium at a point when:

(i) MR = MC, and (ii) MC is rising.

I may face two situations:

(i) MR > MC, and (ii) MR < MC.

For me, MR is constant in both situations so I will have to adjust my output. So the equality between MR and MC will

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be achieved only through changes in MC.

In situation 1, when MR > MC:

I would like to increase the level of output. This would cause an increase in MC. The process of increasing output is to
be continued till MR = MC.

In situation 2, when MR < MC:

I would like to decrease the level of output. This would cause a decrease in MC. The process of decreasing output is to
be continued till MR = MC.

OR

Cost and Revenue Schedule of the Firm

Average
Total
Marginal
Average
Total
Marginal

Output

Cost (AC) Cost (TC) Cost Revenue (AR) Revenue (TR) Revenue (MR)
(units)
(Rs) (Rs) (MC) (Rs) (Rs) (Rs)
1 12 12 12 12 12 12

2 11 22 10 12 24 12

3 10 30 8 12 36 12
4 10 40 10 12 48 12

5 10.4 52 12 12 60 12

6 11 66 14 12 72 12
A firm is in equilibrium only when the following two conditions are satisfied:
i. Marginal Cost (MC) should be equal to Marginal Revenue, (MR) and
ii. Beyond the point of equilibrium, MC should tend to rise.

A careful study of the above table reveals that Marginal Revenue and Marginal cost are both equal when the output is
1 unit and 5 units. However, the firm will be at equilibrium only at the output level of 5 units, because both the
conditions of equilibrium are fulfilled at this level of output. When the producer produces the 6th unit of output, he is
getting Loss because Marginal Cost is greater than Marginal Revenue. His total revenue is not increasing faster than
Marginal cost.
32. The given statement is refuted. The Law of diminishing marginal utility will operate only when consumption is a
continuous process. So there must be continuity in the consumption. If a break is necessary, then the time interval
between the consumption of two units should be appropriately short. For example, if one sandwich is consumed in the
morning and another in the afternoon, the second sandwich may provide equal or higher satisfaction as compared to the
first one.
33. Law of Variable Proportions states that as we increase the quantity of input, keeping other inputs fixed, the total product
initially increases at an increasing rate, then at a decreasing rate and finally at a negative rate. 
Variable factor 

TP  MP  Phase

(Labour)

1
10
10
1st 
2 30 20

3
45
15
4
52
7
2nd 
5 52 0

6 48 -4 3rd 

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 Law of variable proportion can be discussed in three phases: 

i. Increasing Returns to a Factor: In the first phase, every additional variable factor adds more and more to the total
output. It means TP increases at an increasing rate and MP of each variable factor rises. 
ii. Diminishing Returns to a Factor: In the second phase, every additional variable factor adds a lesser amount of
output. It means TP increases at a diminishing rate and MP falls with increase invariable factor. 
iii. Negative Returns to a Factor: In the third phase the employment of additional variable factor causes TP to decline.
MP now becomes negative. 
34. Answer the following questions
1. A. Parallel to X-axis

B. Parallel to Y-axis

C. Rectangular hyperbola
2. Price elasticity of demand in this question is calculated as follows:
Price (Rs.) Demand (units)
4 (P) 5 (Q)

3 (P1) 10 (Q1)

ΔQ  = 10 - 5 = 5

ΔP  = 3 - 4 = -1

ΔQ
 =

P 5 4
Ed = (−) × (−) × = 4
Q ΔP 5 −1

Ed = 4 or Ed > 1

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