Principles Of Economics - For Class ICOM - Part 1 (Commerce Group) - Model paper with Solved MCQs 2020 -2021

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POE OR Economics
For Class XI (Commerce Group)
Model papers 2020 -2021

MCQs ix) Reward without any service is termed as:
Transfer payment

Time: 01 hour    10 Minutes   (Marks: 30)

SECTION 'B' (SHORT-ANSWER QUESTIONS)

MICRO ECONOMICS      (Marks: 15)

2. Attempt any THREE part questions. All question carry equal marks.
i) Briefly describe the Degrees of Elasticity of Demand.
Ans: Ans: Degrees of Elasticity of Demand show the limit of elasticity of demand means how much change may come in demand of goods due to change in price or other factors.

• Perfectly Elastic Demand: Perfectly elastic demand is said to happen when a little change in price leads to an infinite change in quantity demanded.
• Perfectly Inelastic Demand
• Unitary Elastic Demand
• Relatively Elastic Demand
• Relatively Inelastic Demand

ii) Draw Revenue curves under Imperfect market.
Ans: Revenue Curve under Imperfect Competition:
When a firm is working under conditions of monopoly or imperfect competition. its demand curve or AR curve is less than perfectly elastic. In other words, the demand/AR curve has a negative slope and the MR curve lies below it. This is because the monopolist seller ordinarily has to accept a lower price for his product, as he increases his sales.
Under imperfect competition conditions. total revenue increases at a diminishing rate. It becomes maximum and then begins to decline.

DOWNWARD SLOPING REVENUE CURVES

iii) Differentiate between Change in Supply and Change in Quantity Supplied with the tool of diagram.
Ans: Ans: In economics, supply is defined as the amount of a good or service that producers are willing and able to sell at each possible price.
Change In supply occurs due to changes in costs and incentives that change how much a producer can and will produce at a given price. Simply we can say that change in supply due to change in factors other than price.
Whereas Change In quantity supply means change in supply of goods due to change in retail price of goods.

Change in Supply Vs. Change in Quantity Supplied

A change in supply is not the same as a change in quantity supplied.

iv) Explain the concept of MONOPOLY and Mention its types.
Ans: Monopoly is a market situation in which there is only one seller of a product with barriers to entry of others. There are following types of Monopoly:

1. Natural Monopoly:
Some countries due to their physical location and climatic condition can produce a large proportion of the total global production of a product and supply it in the international market at their demanded price.
For example, South Africa has natural monopoly on gold and Brazil on coffee.

2. Legal Monopoly:
When a firm discover a new technique of production or invent a new machine it gets registered its ownership right or we can say that firm has copyright to produce such product and other firms don't have this called legal monopoly.
For example Government Arm factory who have the right to produce arms for defense force.

3. Social Monopoly:
When a firm has right to produce and work for the protection of Public interest for example Sui Gas Company has given rights to produce and distribute natural gas in Pakistan. The company is enjoying a social monopoly.

4. Implied Monopoly:
When some firms or group of business make alliance or pool or cartel to control production of some specific product and make barrier for new companies to enter in their business that is called implied monopoly.

v) Explain the Law of Diminishing Marginal Utility with the help of schedule and diagram.
Ans: Law of Diminishing Marginal Utility:
According to the Law of Diminishing Marginal Utility, marginal utility of a good diminishes as an individual consumes more units of a good. In other words, as a consumer takes more units of a good, the extra utility or satisfaction that he derives from an extra unit of the good goes on falling.
Marshal defines that "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."
Schedule:

Cups Of Tea	Total Utility	Marginal Utility
1	12	12
2	22	10
3	30	8
4	36	6
5	40	4
6	41	1
7	39	- 2
8	34	- 5

Diagram:

MACRO ECONOMICS   (Marks: 15)

3. Answer any THREE part questions. All question carry equal marks:
i) Differentiate between PI and DPI.
Ans: Personal Income (PI):
PI stand for Personal income which is actually received by individuals or households of a country during a year. Deductions are not deducted from this income or salary.
For example before deduction of tax and social security from salary is called personal income.

Disposable Personal income (DPI):
Disposable personal income is that income which is actually available to individuals or households for spending or consumption. We can also say it take home salary or income of individual. Several deductions such as taxes etc are deducted from salary.
DPI = Personal Income - Personal direct taxes

ii) Differentiate between Balance of Trade and Balance of Payments.
Ans: Balance of Trade:
The difference between aggregate value of exports and imports is called balance of trade. If the export value of a country is more than import value, it will be favorable balance of trade. Contrary If export is less than import, it will be unfavorable or negative balance of trade.

Balance of Payment:
Balance of payment gives a comprehensive picture of a country. It includes not only exports and imports but also includes the non-commodity items. These items are services rendered by shipping, insurance. banking companies, debt repayment and a payment of interest and expenditures done by tourist. The difference between receipts and payments are called balance of payment. If receipts are more than payments it will be favorable. contrary if the receipts are less than payments, it will be negative balance of payment.

iii) Mention the characteristics of a good tax system.
Ans: 1. Productivity or Fiscal Adequacy:
An important principle of a good tax system for a developing country is that it should yield adequate amount of resources for the Government so that it should be able to perform its increasing welfare and developmental activities.

2. Diversity:
A good tax system should follow the principle of diversity. This implies that there should not be a single or a few taxes from which Government seeks to raise large revenue. This is because if a Government tries to get large revenue from a single tax or few taxes, it will have to raise the rates of taxation too high.

3. Taxation as in Instrument of Economic Growth:
In a developing economy such as ours, taxation should serve as an instrument of economic growth. Economic growth is primarily a function of rate of capital formation.

iv) Explain Y = C + I G + (X -M).
Ans: Ans: This equation shows the National Income of a country during a year.
Y = Income
C = Consumption
G = Government Expenditures
X = Export
M= Import
The equation shows that national income of any country depends upon the consumption, government expenditures, and the difference of Export and import means balance of trade. Therefore national income includes the GDP and GNP and overall personal income of a country.

v) Explain the concept of Direct and Indirect Taxes with the help of examples.
Ans: A direct tax is paid by an individual or organization to the entity that levied the tax. Direct taxes include income taxes, property taxes, and taxes on assets. There are also indirect taxes, such as sales taxes, wherein a tax is levied on the seller but paid by the buyer.

Time: 25 Minutes     (Marks: 10)

SECTION 'C' (DETAILED-ANSWER QUESTIONS)

4. Answer any ONE part question. All question carry equal marks:
i) Explain the concept of Market Price with the help of schedule and diagram.
Ans: The market price is the current price at which an asset or service can be bought or sold. The market price of an asset or service is determined by the forces of supply and demand. The price at which quantity supplied equals quantity demanded is the market price.
The market price is used to calculate consumer and economic surplus. Consumer surplus refers to the difference hetween the highest price a consumer is willing to pay for a good and the actual price they do pay for the good, or the market price.
Market Price depends on the demand of goods and services that are sold in market. Therefore to understand the combination of price and demand of goods, the law of demand explained by economic experts. Law of supply is also the determinant of Market price but here is we are explaining the important factor of market price which is law of demand.

Law of Demand:
The law of demand describes the relationship between the quantity demanded and the price of a product.
It states that the demand for a product decreases with increase in its price and vice versa. while other factors are at constant. Therefore, there is an inverse relationship between the price and quantity demanded of a product.

Schedule:

Table - 1: Individual Demand Schedule
Price Of A (Per kg in )	Quantity Demand (per week in kgs)
10	15
15	10
20	8
25	4
30	2

Diagram:

The above schedule and diagram show that as the price decreases, the quantity demand increases.

ii) Describe the merits and demerits of International Trade.
Ans: Merits of International Trade:
(i) Optimal use of natural resources:
International trade helps each country to make optimum use of its natural resources. Each country can concentrate on production of those goods for which its resources are best suited. Wastage of resources is avoided.

(ii) Availability of all types of goods:
It enables a country to obtain goods which it cannot produce or which it is not producing due to higher costs, by importing from other countries at lower costs.

(iii) Specialization:
Foreign trade leads to specialization and encourages production of different goods in different countries. Goods can be produced at a comparatively low cost due to advantages of division of labour.

Demerits of International Trade:
(i) Impediment in the Development of Home Industries:
International trade has an adverse effect on the development of home industries. It poses a threat to the survival of infant industries at home. Due to foreign competition and unrestricted imports, the upcoming industries in the country may collapse.

(ii) Economic Dependence:
The underdeveloped countries have to depend upon the developed ones for their economic development. Such reliance often leads to economic exploitation. For instance, most of the underdeveloped countries in Africa and Asia have been exploited by European countries.

(iii) Political Dependence:
International trade often encourages subjugation and slavery. It impairs economic independence which endangers political dependence. For example, the Britishers came to India as traders and ultimately ruled over India for a very long time.




SOURCE: Board Of Intermediate Education Karachi