ISC 12th Economics Exam 2025 : Important Questions & Answers for Last-Minute Revision

ISC Class 12 exams are going on and you have very little time left for the Economics exam. Therefore, we are providing important questions in this article. You can study these thoroughly and score good marks in your exams.

To help you make your preparation effective, we have compiled a list of important questions with detailed explanations.

These questions for ISC Class 12 Economics exam cover various topics from the syllabus.

ISC Class 12th Economics Exam 2025 Most Important Questions

Multiple Choice Questions

Que.1

Points K and T will NOT be attained by the consumer. Select the reason from the options given below. (Understanding) 

(a) K does not lie on any IC and entire money is not spent at T.
(b) K is beyond the financial capacity of the consumer and T provides a lower level of satisfaction.
(c) Equilibrium should be unique and that is point E.
(d) K gives more of both the goods A and B and T gives less B.

Answer. (b) K is beyond the financial capacity of the consumer and T provides a lower level of satisfaction.

Que.2 Utility maximising consumers would like to decrease the consumption when (Understanding)

(a) MUx = Px
(b) MUx > Px
(c) MUx < Px
(d) MUx = Py

Answer. (c) MUx < Px

Que.3

With reference to the diagram shown above, select the reason for the movement from point M to N from the following options. (Analysis)

(a) Increase in the real income of the consumer and rise in relative price of the commodity.
(b) Increase in the real income of the consumer and fall in relative price of the commodity.
(c) Decrease in the real income of the consumer and rise in relative price of the commodity.
(d) Decrease in the real income of the consumer and fall in relative price of the commodity.

Answer. (b) Increase in the real income of the consumer and fall in relative price of the commodity.

Que.4 Naseer is planning to buy a car for his family. Observe the image shown below and select the MOST rational reaction of Naseer. (Application) 

(a) Naseer will not change his decision to buy a car.
(b) He will postpone his plan to buy a car.
(c) Naseer will become indecisive.
(d) He will decide to purchase two cars instead of one.

Answer. (b) He will postpone his plan to buy a car.

ISC Class 12 Study Material

Que.5 Which one of the following statements is CORRECT with reference to government budget? (Application)

(a) Interest paid on government’s borrowing reduces liability of the government.
(b) Financial aid received from the World Bank for cyclone affected areas is revenue receipt.
(c) Grants given by the central government to the state government is capital expenditure.
(d) Profits of BHEL, a PSU, increases the assets of the government.

Answer. (b) Financial aid received from the World Bank for cyclone affected areas is revenue receipt.

Que.6 If the value of US Dollar increases continuously in terms of Yen, it will result in

(a) more import from USA by Japan.
(b) more import from Japan by USA.
(c) more export of USA to Japan.
(d) less export of Japan to USA.

Answer. (b) more import from Japan by USA.

Que.7 Sometimes, a firm considers the action and reaction of its rival firms while determining its price and output levels.
Which market form does such firm belong to? (Recall)

(a) Perfect Competition
(b) Monopoly
(c) Monopolistic competition
(d) Oligopoly

Answer. (d) Oligopoly

Que.8 Given below are two statements marked as Assertion and Reason. Read the statements carefully and choose the correct option. (Analysis)

Assertion: A firm is able to sell more quantity of a commodity by reducing its price.
Reason: As it sells additional units of the commodity at a lower price, the firm’s marginal revenue will be less than its average revenue.

(a) Both Assertion and Reason are true and Reason is the correct explanation of Assertion.
(b) Both Assertion and Reason are true but Reason is not the correct explanation of Assertion.
(c) Assertion is true and Reason is false.
(d) Both Assertion and Reason are false.

Answer. (b) Both Assertion and Reason are true but Reason is not the correct explanation of Assertion.

Que.9 Given below are two statements marked as Assertion and Reason. Read the statements carefully and choose the correct option. (Analysis)

Assertion: GST is a kind of Proportional tax.
Reason: The tax rate remains same irrespective of the level of income of the people.

(a) Both Assertion and Reason are true, and Reason is the correct explanation of Assertion.
(b) Both Assertion and Reason are true, but Reason is not the correct explanation of Assertion.
(c) Assertion is true and Reason is false.
(d) Both Assertion and Reason are false.

Answer. (a) Both Assertion and Reason are true and Reason is the correct explanation of Assertion

Que.10 Oligopoly differs from monopolistic competition on the basis of number of sellers.
State any other difference between these two market forms. (Recall)

Answer. 

Que.11 APC can be greater than one, but MPC is always less than one. Give a reason to justify this phenomenon. (Understanding)

Answer. When C>Y , APC = C/Y >1; but MPC is always less than 1 because increase in consumption expenditure is always less than increase in income as a part of increased income is used for saving as well.

Que.12 If aggregate demand exceeds aggregate supply in a situation of full employment, what will be its impact on the economy? (Understanding)

Answer. It will generate inflationary gap or will lead to inflation.

Que.13 If autonomous payments are higher than autonomous receipts, how can BOP be brought into balance? (Understanding)

Answer. Through accommodating capital receipt.

Que.14 Monopsony is regarded as a buyers’ market. Do you agree? Give a reason. (Evaluate)

Answer. As there is a single buyer in the market, the buyer influences the market in determination of price of the product. So it’s regarded as buyers’ market for the dominance of buyer.

Que.15 Illustrate that Investment multiplier is inversely proportional to MPS. (Understanding)

Answer. Investment multiplier (k) = 1/MPS . Higher MPS reduces k and lower MPS raises k.

Que.16 Cite one measure to overcome a deflationary gap. (Recall)

Answer. • Direct tax rate is to be reduced.
• Government can increase its expenditure.
• Policy of deficit financing can be followed.
• Central bank can reduce bank rate, repo rate, CRR, SLR.
• Central bank can purchase government securities from open market.

Short Answer Questions

Que.17 (i) Prices of air conditioners and refrigerators have shot up in the new year as consumer durables makers pass on the impact of rising raw material costs and higher freight charges to customers, while home appliances like washing machines may witness 5-10 per cent price hike later this month or by March. (Source: The Economic Times) Explain the behaviour of supply of this consumer durable. Illustrate the same in a diagram. (Understanding) 

Answer. (i) Supply will decrease as the same supply will be at higher price (or lower supply at the same price) due to an increase in the cost of production and transportation. Supply curve will shift leftwards as shown below.

(ii) If the price hike in the market is about 10% and this leads to the fall in the quantity demanded by 12%, calculate the price elasticity of demand. Mention the degree of price elasticity of demand. (Application)

Answer. 

Here ep > 1. Therefore, demand is (relatively) elastic.

Que.18 (i) Union Finance Minister Mrs. Nirmala Sitharaman announced during her Budget speech that the Centre would reduce its fiscal deficit to 5.1% of gross GDP in 2024 – 25. (The present fiscal deficit is 5.8% of GDP.) (Source: Union budget 2024-25) What would be the impact of this decision on government borrowing? Why? (Understanding)

Answer. Decision of reduction of fiscal deficit will lead to a decrease in government borrowing because

Fiscal deficit = Total expenditure of the government — (Revenue receipt + Recoveries of loan + other receipts of the government) = Borrowing and other liabilities of the government.

Therefore, reduction of fiscal deficit will lead to reduction of borrowing. (Candidates have to

(ii) It is believed that increase in public expenditure leads to Inflation. Under what circumstances, may a government consider it prudent to increase public expenditure to control inflation? (Understanding)

Answer. In the situation of emergency, like natural calamity, pandemic (COVID 19) etc. government can provide subsidies to the sellers or producers of the basic necessities to control the upward pressure on prices of these commodities. In this situation government has to increase its expenditure for providing this subsidy. 

Que.19 (i) Given that fixed cost is Rs.30. Calculate TVC and TC from the following data. (Application)

Answer. 

(ii) Cite any two differences between Returns to Factor and Returns to Scale. (Understanding)

Answer. 

Que.20 (i) Draw a well labelled diagram to show AFC and AC curves. State the nature of each curve. (Understanding) [2]

Answer. AFC curve is a rectangular hyperbolic curve or it’s asymptotic.

AC curve is a ‘U’ shaped curve.

(ii) Study the data given below and identify the laws followed in the production of A and B depicted in the Table I and Table II. Justify your answer with a reason for each. (Analysis)

Answer. Table I depicts the Law of Variable proportions. Here, output increases due to change in K/L ratio, i.e., due to change in labour only while machine remains constant.

Table II depicts the law of Returns to Scale as K/L =1/2 i.e. constant. Here output increases due to change in labour and machine at the same rate.

Que.21 (i) A perfectly competitive firm always enjoys normal profit in the long run irrespective of the situation it faces in the short run. Discuss the statement in brief. (Understanding) 

Answer. If firms enjoy supernormal profit in the short run, new firms will enter the industry in the long run which will cause an increase in the market supply. This will lead to a fall in price of the commodity till it becomes equal to AC and each firm enjoys normal profit. If firms face loss in the short run, they will exit the industry in the long run which will cause a decrease in the market supply. This will lead to a rise in price of the commodity till it becomes equal to AC and each firm enjoys normal profit.

(ii) A car company ‘W’ hired an international cricket player for its endorsement in India while two other car companies’ ‘Y’ and ‘R’ hired two famous Bollywood film stars for this purpose. Explain the feature of the competitive market indicated above. (Understanding)

Answer. It is a sales promotion measure in view of intense competition and interdependence of firms under oligopoly. Every firm under this market form enjoys a large market share due to small number of firms. Every firm’s action affects its rival firms. So, while taking decision a firm has to take into account the impact on and reaction of its rivals. This phenomenon has been reflected in the example.

Que.22 (i) A firm under perfect competition is a price taker but the industry is the price maker. Defend or refute this statement by giving a reason. (Evaluate)

Answer. Price of the commodity is determined by the interaction of market demand and market supply. So, market or the industry is the price maker. But no individual firm under this industry can influence this price for its insignificant market share. It only has to accept the market determined price and can sell any amount of the commodity. So firm is the price taker. Therefore, the statement is to be defended.

(ii) Normal profits for a firm imply that the firm is breaking even. Explain. (Understanding)

Answer. Normal profit is the minimum profit which is required by the organiser to continue the production. This is a part of total cost of production of a firm. Break-even point is the point where TR=TC, i.e., neither loss nor profit. A firm enjoys normal profit when the total revenue of the firm is enough to cover its cost only since normal profit is a part of total cost.

Que.23 (i) India has been operating on a managed floating exchange rate regime since March 1993. Explain the statement. (Understanding)

Answer. India has been following flexible exchange rate system for many decades, where foreign exchange rate is determined by the forces of demand for and supply of foreign exchange. Since 1993, RBI has been intervening to purchase and sell foreign currencies when foreign exchange rate is very low or high, i.e., India is now following the managed floating exchange rate system for controlling the fluctuation of foreign exchange rate.

(ii) List different components of Balance of Payment on current account and capital account. (Recall)

Answer. Components of current account are as follow:
• Export of goods & import of goods
• Export of services & import of services
• Unilateral transfer receipt & Unilateral transfer payments
• Income receipts &income payments OR • Balance of trade
• Balance of invisible trade • Balance of unilateral transfer Components of capital account are capital receipt & capital payment.
OR
• Balance of trade
• Balance of invisible trade
• Balance of unilateral transfer Components of capital account are capital receipt & capital payment.
OR
Balance of capital account.

Que.24 (i) With the help of a reason, explain why the following are included in calculation of National Income. (Understanding) 
(a) Goods supplied free of cost by the government
(b) Own account production

Answer. (a) Because it is a part of government’s final consumption expenditure.
(b) Because it constitutes a portion of current production of the economy.

(ii) Outline any two precautions that should be taken in estimation of National income by Expenditure method. (Understanding)

Answer. • All final products irrespective of whether these are marketed or not, are to be included.
• Expenditure on intermediate goods is to be excluded.
• Expenditure on second hand goods is to be excluded.
• Expenditure on financial assets is to be excluded.
• Government expenditure on transfer payments is to be excluded.

Que.25 (i) Differentiate between Personal income and Private income. (Understanding) 

Answer. 

(ii) Why are net exports added in the total expenditure in measuring National income by Expenditure method? (Understanding)

Answer. Exports represent the expenditure by foreigners on the goods and services exported by the country. It is to be added to get GDP because goods and services exported are the part of domestic product. Again, imports represent the expenditure made by the residents of the country on imported goods and services. It should be subtracted from the total expenditure as the goods and services imported are not the part of domestic production of the country. Hence, it cannot be a part of GDP. Therefore, (exports —import) i.e. net export is a part of GDP and hence of NI.

Que.26 With the help of a diagram, determine the equilibrium level of output and income by using Aggregate demand and Aggregate supply approach. (Understanding)

Answer. Equilibrium income refers to the level of real income or the level of output for which aggregate demand and aggregate supply become equal. Therefore, the equilibrium condition is stated as, AS=AD i.e., Y = C+I

Ye is the equilibrium income because for this level of income equilibrium condition Y=C+I, has been satisfied. At Y = Y1, C+I > Y, i.e., a situation of excess demand which induces the producers to produce more and this leads to rise in Y until Y= C+I i.e. Equilibrium is restored. Again, at Y= Y2, C+I < Y i.e. a situation of excess supply which induces the producers to reduce the current production and this leads to fall in Y until Y= C+I i.e. Equilibrium is restored.

long answer questions

Que.27 (i) What are Average product and Marginal product? With the help of a suitable diagram, discuss the relationship between Average product and Marginal Product. (Understanding)

Answer. Average product is the production per unit of a factor, such as labour. It is expressed as APL = TP/L or Q/L Marginal product is the change in production for one unit change in variable factor, say labour. It’s expressed as, MPL = ∆Q/ ∆L.

In Stage I (under law of increasing return) – When AP rises, MP>AP. MP curve lies above AP curve in the above diagram when later slopes positively. At the end of the stage I, When AP is maximum for L1 of labour, MP =AP and MP curve intersects AP curve at its maximum point, k. In Stage II (under law of diminishing return) – When AP falls, MP < AP and MP curve lies below AP curve and intersects labour axis, i.e. MP=0, for L2 level of labour at the end of the stage II. In stage III (under law of negative return) – AP continues to fall, but never becomes zero for positive labour. MP<0 and the curve lies under labour axis.

(ii) Which stage of the Law of Variable proportions will be the best for the producer? Explain with a reason.

Answer. Producer will take the decision of his operation, among these three stages, through the process of elimination. Stage III will be eliminated as MP<0. If producer operates at any point in stage I before it ends, he won’t be able to enjoy the full advantage of maximum productivity as AP is continuously rising over the entire stage. Therefore, a rational producer will operate only in stage II.