Subject

Economics

Class

CBSE Class 12

Pre Boards

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Sample Papers

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 Multiple Choice QuestionsLong Answer Type

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11.

State the different phases of changes in Total Product and Marginal Product in the Law of Variable Proportions. Also show the same in a single diagram.


The law of variable proportions state that as the quantity of one factor is increased, keeping the other factors fixed, the marginal product of that factor will eventually decline. This means that up to the use of a certain amount of variable factor, marginal product of the factor may increase and after a certain stage it starts diminishing.

Assumptions of Law of Variable Proportions:
1. Constant State of Technology: First, the state of technology is assumed to be given and unchanged. If there is an improvement in the technology, then the marginal product may rise instead of diminishing.

2. Fixed Amount of Other Factors: Secondly, there must be some inputs whose quantity is kept fixed. It is only in this way that we can alter the factor proportions and know its effects on output. The law does not apply if all factors are proportionately varied.

3. Possibility of Varying the Factor proportions: Thirdly, the law is based upon the possibility of varying the proportions in which the various factors can be combined to produce a product. The law does not apply if the factors must be used in fixed proportions to yield a product.

Behaviour of TP

Stages Stage Name TP Range
I Stage of increasing return

TP increases at an
increasing rate till F

From 0 to point F
II Stage of diminishing return

Increases at a decreasing
rate and attains maximum
at H

From F to point H
III Stage of negative return. TP starts to fall From H onwards

The whole production phase can be distinguished into three different production stages.
Ist Stage: Increasing Returns to a Factor
This stages starts from the origin point O and continues till the point of inflexion (F) on the TP curve. During this phase, TP increases at an increasing rate and is also accompanied by rising MP curve. The MP curve attains its maximum point corresponding to the point of inflexion. Throughout this stage, AP continues to rise.

IInd Stage: Diminishing Returns to a Factor
This stage starts from point F and continues till point H on the TP curve. During this stage, the TP increases but at a decreasing rate and attains its maximum point at H, where it remains constant. On the other hand, the MP curve continues to fall and cuts AP from its maximum point S, where MP equals AP. When TP attains its maximum point, corresponding to it, MP becomes zero. AP, in this stage initially rises, attains its maximum point at S and thereafter starts falling

IIIrd Stage: Negative Returns to a Factor
This stage begins from the point H on the TP curve. Throughout this point, TP curve is falling and MP curve is negative. Simultaneously, the AP curve continues to fall and approaches the x-axis (but does not touch it).

 

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12.

Why is the equality between marginal cost and marginal revenue necessary for a firm to be in equilibrium? Is it sufficient to ensure equilibrium? Explain.

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13.

Market for a good is in equilibrium. The demand for the good 'increases'. Explain the chain of effects of this change.

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 Multiple Choice QuestionsMultiple Choice Questions

14.

The value of multiplier is

  • 1/MPC

  • 1/MPS

  • 1/(1-MPS)

  • 1/(1-MPS)

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15.

Borrowing in government budget is

  • Revenue deficit

  • Fiscal deficit

  • Primary deficit

  • Primary deficit

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16.

The non-tax revenue in the following is

  • Export duty

  • Import duty

  • Dividends

  • Dividends

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17.

Other things remaining unchanged, when in a country the price of foreign currency
rises, national income is (choose the correct alternative)

  • Likely to rise

  • Likely to fall

  • Likely to rise and fall both

  • Likely to rise and fall both

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 Multiple Choice QuestionsShort Answer Type

18.

What is 'aggregate supply' in macroeconomics?

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19.

If Real GDP is Rs. 200 and Price Index (with base = 100) is 110, calculate Nominal GDP.

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20.

Name the broad categories of transactions recorded in the 'capital account' of the Balance of Payments Accounts.
OR
Name the broad categories of transactions recorded in the 'current account' of the Balance of Payments Accounts.

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