Maharashtra Board HSC 12th Exam 2024 : Economics Most Important Question Answers

Maharashtra Class 12 exams have started and you have very little time left for the Economics exam. Therefore, we are providing the Most Important Answer Type Questions in this article. You can study them well and score well in your exams.

So this article is to help you ace those Most Important Short & Long Question Answers with quick and effective last-minute revision.

Most Important Short & Long Question Answers are an important part of your Economics exam to score good marks. Mastering them can boost your confidence and lead to important scores. These questions cover various topics from the Economics syllabus. Remember, it is important to understand the logic behind each answer to score well.

Maharashtra Board Economics Most Important Question Answers

1. Differentiate between the Money Market and Capital Market.

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2. Features of Monopolistic Competition.

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Features of Monopolistic Competition:-

1. Large number of sellers:- There are many sellers or firms in a monopolistic competition. A single seller is not large enough to influence the market. Each one may, to a certain extent, follow an independent price and output policy without disturbing others.

2. Product Differentiation:- Product is differentiated in monopolistic competition. Products differ from each other in many ways. Product differentiation can take place in the form of brand name and trademark. Products may be differentiated in terms of colour, size, design, taste, etc.

3. Close substitutes:- Even though the products are differentiated, they are very close substitutes. For example, as far as brands are concerned, there are many close substitutes for products like soaps and garments. However, they are not perfect substitutes as in perfect competition.

4. Selling cost:- firms in a monopolistic competition promote sales by incurring selling cost. Selling cost includes all types of costs incurred to promote sales, such as cost usually incurred in the form of advertisement, exhibitions, gifts, free samples and so.

5. Freedom of Entry and Exit:- Another important feature of monopolistic competition is the freedom of entry and exists of firms. A firm is free to enter the market to produce which is a substitute for the existing products. There exist freedom of entry and exit of firms in the market.

6. Price Maker:- Under Monopolistic competition, the firm is a price maker. The firm has some control over the price cue to product differentiation. Thus, there are price differentials between the firms producing close substitutes.

7. Nature of demand curve:- The demand curve for the products of each firm is downward sloping. This means that an individual firm can sell more by reducing the price.

8. Two-dimensional competitions:- Under Monopolistic competition, the competition among the sellers take place in two-dimensional.

• Price competition:- Under Price competition, the firms compete with each other by lowering the price of the product to take advantage of higher sales.
• Non Price competition:- Under Non price competition, the firms compete with each other by making variation in the product or through selling cost. Through this, each seller tries to capture the market.

Maharashtra Board Class 12 Study Material

3. Explain the law of demand with its assumptions.

Ans. 

Assumptions of The Law of Demand:-

The Law of Demand is based on the following assumption.

1. Size and composition of the population remains constant:-

There should not be any change in the size and composition of the population. Because a change in population will bring about a change in demand even if the price remains the same.

2. The income of the consumer remains constant:-

The income of consumer should remain constant. If there is any change in income, demand tends to change even though the price is constant. For example, if income increases people will demand more quantity of a commodity even at a higher price.

3. Tastes and habits remain constant:-

Taste, habit, custom, tradition, and fashion, etc. should remain unchanged. Due to changes in taste and preference, people's demand for goods undergoes a change.

4. No change in expectations about future price changes:-

There should not be any change in the expectations about the prices of, goods in the future. If consumers expect that price will rise or fall in the future, they will change their present demand though price is.constant.

5. Prices of substitutes and, complementary goods remain constant:-

The prices of substitute and complementary goods should remain constant. For instance, if the price of tea rises, its demand will fall but demand for coffee will increase.

6. Government Policy remains constant:-

The taxation and fiscal policy of the government should not change. A change in income tax, for instance, may cause changes in consumer's disposable income and hence demand.

4. Partial equilibrium and General equilibrium

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5. Distinguish between Surplus budget and Deficit budget.

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6. What is the elasticity of demand?

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1. The term elasticity indicates the responsiveness of one variable to a change in the other variable. Elasticity of demand refers to the degree of responsiveness of quantity demanded to a change in its price or any other factor.
2. According to Prof. Marshall, “Elasticity of demand is great or small according to the amount demanded which rises much or little for a given fall in price and quantity demanded falls much or little for a given rise in price.”

7. Distinguish between the following. Standard coins and Token coins.

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8.Explain the subject matter of Micro Economics.

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Microeconomics deals with the study of the following theories and subject matters:

• Theory of product pricing- The theory of product pricing explains how the prices of goods are determined in the market with the help of demand and supply factors. The demand is studied by studying the consumer behaviour and the supply is studied by studying the cost and production behaviour of the firm.
• Theory of factor pricing- The theory explains how the prices of various factors of production, namely, land, labour, capital and entrepreneur are determined in the factor market, in the form of rent, wages, interest and profits, respectively.
• Theory of economic welfare- This theory of microeconomics deals with the allocation of resources. It involves making decisions such as what to produce, how much to produce, when to produce, for whom to produce and by what technique to produce.

9. Explain any four points of importance of Micro economics.

Ans. 

Importance of Micro Economics:

1. Price Determination: Microeconomics explains how the prices of different products and various factors of production are determined.
2. Free Market Economy: Microeconomics helps in understanding the working of a free market economy. A free market economy is an economy where the economic decisions regarding the production of goods, such as ‘What to produce? How much to produce? How to produce? etc.’ are taken at individual levels. There is no intervention by the Government or any other agency.
3. Foreign Trade: Microeconomics helps in explaining various aspects of foreign trade like the effects of tariffs on a particular commodity, determination of currency exchange rates of any two countries, gains from international trade to a particular country, etc.
4. Economic Model Building: Microeconomics helps in understanding various complex economic situations with the help of economic models. It has made a valuable contribution to economics by developing various terms, concepts, terminologies, tools of economic analysis, etc. Economic models are built using various economic variables.
5. Business Decisions: Microeconomic theories are helpful to businessmen in taking crucial business decisions. These decisions are related to the determination of the cost of production, the determination of prices of goods, the maximization of output and profit, etc.
6. Useful to Government: It is useful to the government in framing economic policies such as taxation policy, public expenditure policy, price policy, etc. These policies help the government to attain its goals of efficient allocation of resources and promoting the economic welfare of the society.
7. Basis of Welfare Economics: Microeconomics explains how the best results can be obtained through the optimum utilization of resources and their best allocation. It also studies how taxes affect social welfare.

10. State the determinants of aggregate demand.

Ans. 

The following are the determinants of aggregate demand:

• Consumption expenditure (C): Consumption expenditure refers to the total expenditure incurred by all the households in an economy on different types of final goods and services in order to satisfy their wants.  
• Investment expenditure (I): Private investment expenditure refers to the planned (ex-ante) total expenditure incurred by all the private investors on the creation of capital goods such as expenditure incurred on new machinery, tools, buildings, raw materials etc.  
• Government expenditure (G): Government expenditure refers to the total planned expenditure incurred by the government on consumption and investment purposes to enhance the welfare of the society and to achieve higher economic growth rates. 
• Net exports (X – M): Net exports of a country refers to the difference between the demand for domestically produced goods and services by the rest of the world (exports) and the demand for goods and services produced abroad by the residents of that country.

11. Distinguish between: Increase in demand and Decrease in demand

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Increase in DemandDecrease in Demand1)When more quantity is required than before at the same price, it is called an increase in demand. When less quantity is required than before at the same price, it is called a decrease in demand.2)An increase in demand occurs due to favourable changes in factors other than price, like fashion, income, taxation policy, advertisements, etc. A decrease in demand occurs due to unfavourable changes in factors other than price, like fashion, income, taxation policy, advertisements, etc.3)An increase in demand is indicated by a shift in the demand curve to the right. A decrease in demand is indicated by a shift in the demand curve to the left.4)

When there is an increase in demand, the demand curve shifts to the right from DD to D₁​D₁​ , as shown in the figure.

Increase in demand

When there is a decrease in demand the demand curve shifts to the left from DD to D₂​D₂​ as shown in the figure.

Decrease in Demand

12. Explain the subjective factors which determine consumption function.

Ans. 

The following are some of the subjective factors that determine consumption function:

• Motive of precaution: People save money for the future in order to meet unexpected expenditure.
• Motive of foresightedness: People cut down their spending in order to meet future requirements for money. For examples, requirements for higher education, marriage, buying a house etc.
• Motive of independence: As per this motive, man saves more in order to depict more power and independence.
• Motive of pride: Another motive that prevents people from spending is wanting to maintain the same economic stability in the future. Providing some wealth to their future generations or making donations gives them a feeling of pride.
• Motive of enterprise: People prevent current consumption and save for the purpose of investing. Under this motive, people save to invest in a profitable enterprise.
• Motive of calculation: Under this motive, people save to invest in shares and debentures in order to increase their income.

13. Distinguish between: Stock and Supply

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14. Clearing house system economises the use of cash.

Ans. True. The clearing house function implies that the Central Bank settles inter-bank claims of the commercial bank. In this way it reduces the need for cash reserves by the commercial bank, thereby economising the use of cash

15. State whether the following statement is True or False with reason: Central Bank works for profit.

Ans. False, the central bank does not work for earning profits.
Explanation:
Central bank is the apex financial institution of a country. It performs various functions such as being a banker to the government, controller of the credit, issuer of the currency notes and others. The main objective of a central bank is to work for the benefit and development of the society as a whole and not to earn profits.​

16. Define or explain the following concept: National income Define National Income.

Ans. National income is the total market value (in monetary terms) of all final goods and services produced by the firms during an accounting year. In other words, it can be defined as the aggregate of all factor incomes flowing from the firms to the households (i.e. by aggregating the rent, wages, interest and profit earned in the economy). There are three methods of measuring national income, namely: value-added/ product method, income method and expenditure method.

17. General equilibrium

Ans. In economics, general equilibrium theory attempts to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that the interaction of demand and supply will result in an overall general equilibrium.

18. Distinguish between microeconomics and macroeconomics.

Ans. Microeconomics studies economic problems at an individual level. It determines the output and price for an individual firm. While macroeconomics studies the economic problems at the level of an economy as a whole. It determines an aggregate output and general price level in the economy as a whole.

19. Define or Explain the following  concepts Macroeconomic variables

Ans. Macroeconomic variables are the ones that are used in the study of macroeconomics. Major macroeconomic variables are aggregate price, aggregate demand, aggregate supply, inflation, unemployment, etc.

20. State and explain the law of demand.

Ans. According to the law of demand, a consumer’s demand shares an inverse relationship with the price of a good and vice-versa, ceteris paribus (other things being constant). In other words, if the income, price of related goods and a consumer’s tastes and preferences remain unchanged, then the demand of a good move opposite to the movement in the price of those goods.

21. Define or Explain the Individual economic unit.

Ans. 

Individual economic unit.

1. Individual firms, households, industries are considered as individual economic units.
2. Micro economics is concerned with the study of economic behaviour of individual units like households, firms, industries and markets. In other words, it makes microscopic or in-depth study of individual economic units and not the whole economic units.

22. Meaning and Definition of Macroeconomics

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Meaning:- The term Macro is derived from Greek word “Makros” which means large. It is the branch of economics, which studies the behaviour of all economics units combined together. Macroeconomics is a study of aggregates. It is the study of the economic system as a whole. Therefore, it is also called as Aggregate Economics.

Definition:- “Macroeconomics deals not with individual quantities as such, but with aggregates of these quantities; not with individual incomes but with the national incomes; not with individual prices but with the price level; not with individual outputs but with the national output’.

23. Define or explain the following concept: National income

Ans. National income is the total market value (in monetary terms) of all final goods and services produced by the firms during an accounting year. In other words, it can be defined as the aggregate of all factor incomes flowing from the firms to the households (i.e. by aggregating the rent, wages, interest and profit earned in the economy). There are three methods of measuring national income, namely: value-added/ product method, income method and expenditure method.

24. Explain the determinants of aggregate supply.

Ans. 

The main determinants of the aggregate supply are briefly explained as follows:-

1. Natural Resources:-

Natural Resources refer to all kinds of resources, which are freely available in the nature and used in the process of production. They include land, climatic conditions, rainfall, water resources, sunshine, and minerals deposits. Etc. total production of goods and services in the economy depends on the availability of natural resources as well as their utilization. Since it is difficult to change the size of the natural resources, theyare considered to be constant.

2. Supply of Labour:-

It refers to total labour force and human resources (HR) available and used in the production of goods and services in the economy. The supply of labour depends on the size of the population, age composition of the population, education and training of the labour force. The size of and efficiency of the labour are very essential for increasing production. It is assumed that the supply of labour can be changed in the short run.

3. Capital:-

Capital is the produced means of production. It is a man-made factor of production. The aggregate supply of goods and services produced in the country depends on the availability and use and quality of capital. Therefore, more the capital more is the supply of goods, and less capital available, less would be the supply.The stock of capital is considered to be constant in short period.

4. State of Technology:-

The state of technology implies the application of modern and advanced techniques and methods in the production process. The application of improved technology increase overall productivity. In the short term, the state of technology is assumed be constant.

25. What is the importance of the study of Micro Economics?

Ans. 

Micro economics is a branch of economics which is concerned with the analysis of the behaviour of an individual economic unit or variable. Micro economics plays a vital role in the study of modern economic theory. It is important in the following ways as described below:

Price Determination: It explain how prices of individual commodities are determined and how rewards of factors of productions are determined and distributed.

Business Decision Making: Micro economic theory help businessman to determine their price policy, maximum level of output and achievement of maximum productivity from factors combination.

Business and Production planning: Micro economic policy helps in preparing and planning of business policy, expansion of business and making investment decisions to achieve maximum output and peoductivity.

To understand the working of the economy: It helps us in understanding the working of a free enterprise economy. It gives us an idea about how major economic decisions are taken in a market economy.

Helpful in the efficient employment of resources: It suggests economizing, that is how efficiently the scarce available resources can be utilized in production process in an economy.

Helps in International Trade: Micro economics is used to explain gains from internal trade, external trade, foreign exchange, balance of payment, disequilibrium and in the determination of exchange rate.

Basis of welfare economics: The entire structure of micro economics has been built on the basis of price theory which is an important constituent of micro economics. It suggests the conditions of efficiency and explains how it can be achieved. It helps in improving the standard of living of population.

Helpful in understanding the consequences of taxation: Imposition of tax leads to reallocation of resources from one place to another. Micro economics explains how imposition of different types of direct and indirect taxes lead to attainment of social welfare.

Tool for evaluating economic policies: It helps the states and central government to frame economic policies like price policy, taxation policy etc. It also explains the condition of efficiency in production and consumption. 

Construction and use of models: Micro economics construct and uses simple models in order to understand the actual economic phenomenon. It uses abstract models to explain the economic phenomenon.

26. Define or Explain the following concept. Partial equilibrium

Ans. Partial equilibrium is an equilibrium situation achieved taking into consideration only a part of the market condition. That is, it is the equilibrium with regard to an individual unit assuming the effect of other units and variables constant. In other words, it is based on the assumption of “other things remaining constant”. It neglects the interdependence among variables. Thus, microeconomic analysis is regarded as partial equilibrium.

27. Slicing method and Lumping method

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28. Explain the types of utility.

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The following are the different types of utility:

1. Form utility- Increase in utility due to change in shape of good is termed as form utility.
2. Place utility- Increase in utility due to change in the place where it is consumed is called place utility.
3. Time utility- Increase in utility due to change in the time of usage is called time utility.
4. Service utility- When services are rendered to the consumers by service providers or professionals, it is called service utility.
5. Knowledge utility- Increase in utility due to an increased knowledge about a good is known as knowledge utility.

29. Define or explain the following concept. Service utility.

Ans. It arises when personal services are rendered by various professional in the society to others. Services provided by doctors to patients, knowledge given by teachers to students, suggestions by lawyers to his clients, etc., are examples of service utility. In this case, production and consumption both take place at the same time. 

30. What are the characteristics of utility?

Ans. 

The following are the characteristics of utility:

1. Relative concept - Utility is a relative concept as it differs from time to time and from place to place. For instance, woollen clothes have more utility in winter and less in summer. Similarly, woollen clothes have more utility in Kashmir than in Jaipur.
2. Subjective concept - Utility refers to the satisfaction that a consumer expects to derive from the consumption of a particular good. It is a subjective concept as it varies from person to person and from time to time. A consumer himself defines the utility derived from the consumption of a good.
3. Ethically neutral - Utility is said to be ethically neutral as it does not discriminate between commodities on the basis of characteristics such as good, bad, moral, immoral etc. This implies that a commodity may provide utility even when it is socially undesirable.
4. Utility and usefulness are different - Utility and usefulness are two different concepts. Utility means the satisfaction derived from the consumption of a good. On the other hand, usefulness is the benefit obtained from the commodity.
5. Utility is not the same as pleasure - Utility does not imply pleasure. That is, it is not necessary that a commodity that has utility will always provide pleasure or happiness to the consumer.
6. Utility is different from satisfaction - While utility refers to the want satisfying capacity of a commodity, satisfaction is an expression of the feeling of happiness. Moreover, utility is the anticipated level of satisfaction, while satisfaction is actually realised by the consumer.
7. Utility is not easily measurable - Utility is difficult to measure in terms of numbers cardinal measurement. It is a psychological concept, as it cannot be seen or touched, but can only be experienced.
8. Depends upon the intensity of want - This means that the utility derived from the consumption of a commodity depends upon the intensity of want for that commodity. The greater the intensity of want, the greater the utility derived from the consumption of the commodity.
9. It is the basis of demand - Demand for a commodity is based on the utility derived from it. A person will demand a commodity only if it gives him/her some satisfaction or utility, otherwise, it will not be demanded.

31. Explain the subjective factors which determine consumption function.

Ans. 

The following are some of the subjective factors that determine consumption function:

• Motive of precaution: People save money for the future in order to meet unexpected expenditure.
• Motive of foresightedness: People cut down their spending in order to meet future requirements for money. For examples, requirements for higher education, marriage, buying a house etc.
• Motive of independence: As per this motive, man saves more in order to depict more power and independence.
• Motive of pride: Another motive that prevents people from spending is wanting to maintain the same economic stability in the future. Providing some wealth to their future generations or making donations gives them a feeling of pride.
• Motive of enterprise: People prevent current consumption and save for the purpose of investing. Under this motive, people save to invest in a profitable enterprise.
• Motive of calculation: Under this motive, people save to invest in shares and debentures in order to increase their income.

32. Define or explain the following concept. Unitary elastic demand.

Ans. Unitary elastic demand implies that a change in the price of a commodity leads to a proportionate change in the quantity demanded of that commodity. For instance, if the demand for Good X is unitary elastic, a 50% increase in the price of Good X will lead to a 50% decline in the quantity demanded of Good X. In this case, E_d = 1.

33. Output method of measuring national income and Income method of measuring national income.

Ans. 

34. What is the role of the capital market in India?

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Capital market is an important constituent of the financial system. It is basically a market for long-term funds (both equity and debt) raised within and outside the country.

The role of capital market in India can be explained as follows:

1. Mobilizes long term savings: There is an increasing demand for investment funds by industrial organizations and the government. But the availability of financial resources is insufficient to meet this growing demand. The capital market helps to mobilize long-term savings from various sections of the population through the sale of securities.
2. Provides equity capital: Capital market provides equity capital or share capital to entrepreneurs which could be used to purchase assets as well as fund business operations.
3. Achieve operational efficiency: Capital market helps to achieve operational efficiency by lowering the transaction costs, simplifying transaction procedures, lowering settlement timings in the purchase and sale of stocks.
4. Quick valuation: Capital market helps to determine a fair and quick value of both equity (shares) and debt (bonds, debentures) instruments.
5. Integration: Capital market leads to integration among real and financial sectors, equity and debt instruments, government and private sector, domestic and external funds, etc.

35. Slicing method and Lumping method.

Ans. 

Slicing method and Lumping method:-

Micro economics uses slicing method for in-depth study of economic units. It divides or slices the economy into smaller units, (such as individual households, individual firms, etc) for the purpose of in-depth study. Macroeconomics uses lumping method for the purpose of economic study. Under lumping method we study the general price level, and not prices of individual products.

36. Define or Explain the following concept.Partial equilibrium

Ans. Partial equilibrium is an equilibrium situation achieved taking into consideration only a part of the market condition. That is, it is the equilibrium with regard to an individual unit assuming the effect of other units and variables constant. In other words, it is based on the assumption of “other things remaining constant”. It neglects the interdependence among variables. Thus, microeconomic analysis is regarded as partial equilibrium.

37. Income elasticity of demand.

Ans. 

Income elasticity of demand:-

Income elasticity of demand may be defined as the degree of responsiveness of quantity demanded to change in income only. Other factors including price remain unchanged. it is written as-

Ey = Percentage change in quantity demanded ÷ Percentage change in income

Symbolically, Ey = (% ∆ Qd) ÷  (% ∆Y)

Here: Q = quantity demanded, Y = Income, ∆ = Change,

Income elasticity of demand is positive, when demand increases with increasing income. Income elasticity of demand is negative when, quantity demanded decreases with increase in income. Income elasticity of demand is negative when, quantity demanded decreases with increase in income. In case of normal goods income elasticity of demand is positive, whereas in case of inferior goods, income, elasticity of demand is negative. Income elasticity of demand can be zero, one, greater than one and less than one.

38.  Answer in detail State the features of Macro economics. 

Ans. The following are the features of macroeconomics:
i. Study of aggregates: - It is a branch of economics that studies the economic variables of an economy as a whole. It focuses on the aggregate measures such as aggregate demand, aggregate supply, aggregate price level etc.
ii. Lumping method: - Macroeconomics uses the lumping method. That is, it splits up the entire economy into big lumps (sectors) and then studies the aggregate measures such as aggregate demand, aggregate supply, aggregate price level etc.
iii. General equilibrium analysis: - Macroeconomic analysis is based on general equilibrium analysis i.e. it studies equilibrium in different markets simultaneously. This approach assumes “everything depends on everything else”.
iv. Income analysis: - Macroeconomics is also known as income analysis, because its main focus is on how income and employment levels are determined. Also, it studies the causes behind fluctuations in these levels.
v. Policy-oriented: - Macroeconomic analysis helps in formulating policies. These policies help in creating new employment opportunities. Also, they pull the economy out of the low level of income and demand.
vi. Dynamic: - Macroeconomics basically deals with the changes in the economy. It studies how macroeconomic variables such as aggregate demand, aggregate supply, aggregate price level etc. are determined and how they change over time.

39. Output method and Expenditure method.

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40. Short period and Long period

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41. With the increase in income, both consumption and savings increase.

Ans. Lord J.M: Keynes explains the relationship between consumption (C) and income (Y), in terms of his psychological law of consumption. According to this law, as aggregate income increases, the total consumption expenditure in the economy also increases, but in a lesser proportion than the increase in income. In other words the proportion of income spent on consumption goes on falling as income increases. This is because as income increases, the individual wants are satisfied to a larger and larger extent. So when income increases further, people do not consume the entire income. They save a part of it. Hence, there is bound to be a gap between income and consumption. According to Keynes, with the increase in income, both consumption and savings increase.

42. Output method of measurement of national income. 

Ans. 

The output method measures the national income either, by taking the market value of final goods and services produced in an economy during an accounting year, or by estimating the contribution made by each of the producing units in the economy to the total production within the domestic territory during an accounting year. There are two methods of measuring national income by the output method.
i. The final goods method:  This method measures the national income by taking the market value of final goods and services produced in an economy during an accounting year.
ii. The value added method: The value added method measures the national income by estimating the contribution made by each of the producing units in the economy to the total production within the domestic territory during an accounting year.

43. Personal income and Disposable income

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44. State with reason, whether you agree or disagree with the following statement: 

Ans. 

I agree with the above statement.

Reason:

1. Double counting occurs when the costs of intermediate goods used by a business to produce finished good are included in the computation of a nation's GDP.
2. According to the value-added approach, value-added at each stage of the production process is included while calculating national income.
3. Value-added = Value of final output - Value of input.
4. GNP is obtained by adding the values added by the different stages of the production process till the final output is reached in the hands of consumers.
5. The calculation in such a manner ensures that the costs of all intermediate goods are counted only once.

45. What are the Typing of Budget.

Ans. 

The types of budgets are as follows:

Balanced Budget :- Balanced budget is a situation, in which estimated revenue of the government during the year is equal to its anticipated expenditure.

Government's estimated Revenue = Government's proposed Expenditure.

For individuals and families, it is always advisable to have a balanced budget.

 Unbalanced Budget :- The budget in which income & expenditure are not equal to each other is known as Unbalanced Budget.

Unbalanced budget is of two types they are Surplus Budget, Deficit Budget.

Surplus Budget

The budget is a surplus budget when the estimated revenues of the year are greater than anticipated expenditures.

Government expected revenue > Government proposed Expenditure.

Deficit Budget

Deficit budget is one where the estimated government expenditure is more than expected revenue.

Government's estimated Revenue < Government's proposed Expenditure.

46. Write the answers in ‘one’ or ‘two’ paras each: Explain the types of Government budget.

Ans. 

here are three main types of government budgets.

1. Balanced budget - When the estimated revenue and expenditure of the government are equal, the budget is said to be a balanced budget.
   Balanced budget = Government Receipts = Government Expenditure
2. Surplus budget - When estimated government receipts are more than the estimated government expenditure, the budget is said to be a surplus budget.
   Surplus budget = Estimated Government Receipts > Estimated Government Expenditure
3. Deficit budget - When estimated government receipts are less than the estimated government expenditure, the budget is said to be a deficit budget.
   Deficit budget = Estimated Government Receipts < Estimated Government expenditure

47. Explain with reasons, whether you agree or disagree with the following statement The law of 'diminishing marginal utility' is important in practice.

Ans. 

Yes, we agree with the given statement. The law of diminishing marginal utility is important in practice. The following are some of the points that highlight the importance of the law. 

1. This law helps the consumers in budget planning such that maximum satisfaction is achieved.
2. It helps the producers in determining various policies such as the price and sales policies.
3. Keeping in consideration this law, a monopolist can easily follow the price discrimination policy.
4. With the help of this law, the formulation and implementation of appropriate policy decisions can be taken.
5. The law also helps the finance minister in formulating progressive taxation policies so as to reduce economic inequality.

48. Give reasons or explain the following statement:  Income which is not saved is consumption.  

Ans.  Income has two major components i.e., consumption and savings. This means an individual can utilise his/her income in two ways, either by consuming it (by purchasing goods and services or for investment purposes) or by saving it (by depositting it in banks). Thus, it can be said that income which is not saved is consumption.

49. Write short notes Significance of price elasticity of demand.

Ans. 

The following points highlight the importance of elasticity of demand:

• Useful for trade unions- The concept of elasticity of demand is used by trade union leaders in collective bargaining. For instance, the trade union leaders can bargain for higher wages if they know that the demand for their labour is inelastic.
• Useful in international trade- This concept proves helpful in determining the norms that would prove beneficial for international trade. For instance, based on the elasticity of the commodities that are exported, the country can decide on the price that is to be charged.
• Useful to finance minister- Elasticity of demand helps finance minister in selecting goods and services that can be taxed and on which subsidy should be provided. 

50. State with reason. Whether you ‘agree’ or ‘disagree’ with the following statement: There are no exceptions to the law of Demand

Ans. 

No. The statement is false. The exceptions to the law of demand are :

1. Changes in the prices of related goods
2. Tastes and Preferences of the consumers
3. Income of the consumer
4. Changes in technology
5. Changes in taxation policy
6. Changes in price expectations of consumers.

The law of demand may not work in case of the above cases.