Maharashtra Class 12 Economics 2023 : Most Important Question with Answers

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Maharashtra Class 12 Economics 2023 : Most Important Question with Answers

Maharashtra Board Economics Class 12th Practice Questions are available to download here. In which Long Type Questions are given with fully detailed solutions.

Maharashtra Board 12th Class Practice Question Papers are very helpful to get an overview of the real exam question papers. The available practice question papers can be very useful for the students to prepare for the exam.

ECONOMICS

Question 1. (A) Complete the following statements by choosing the correct alternatives :

(1) In the law of diminishing marginal utility, Alfred Marshall assumes that marginal utility of money …………………………..

(a) increases

(b) remains constant

(d) rises and then falls

(2) Demand curve is parallel to X-axis in case of ……………………

(a) perfectly elastic demand

(b) perfectly inelastic demand

(d) relatively inelastic demand

(3) Index number is a …………………… tool.

(a) historical

(b) geographical

(c) statistical

(d) linguistic

(4) …………………….. is the quantitative tool of credit control.

(a) Moral Suasion

(b) Credit Rationing

(d) Statutory Liquidity Ratio

(5) Duty levied on …………………… is special levy.

(a) television

(b) telephone

(c) opium

(d) notebook

(B) Find the odd word out :

(1) Harmful Products : Alcohol, Poison, Opium, Milk.

(2) Necessary Goods : Salt, Medicine, Milk, Perfume.

(3) Type of Bank Accounts : Saving a/c, D-mat a/c, Recurring a/c, Current a/c.

(4) Exceptions to the Law of Supply : Urgency of cash, Agricultural produce, Labour, Mobile phone.

(5) Feature of Monopoly : Single seller, Large number of buyers, Selling cost, Price discrimination.

Ans. (1) Odd word – Milk

(2) Odd word – Perfume

(3) Odd word – D-mat a/c

(4) Odd word : Mobile phone

(5) Odd word : Selling cost

(C) Complete the correlation :

(1) Transportation of good : Place utility : : Furniture from wood :

Ans. Form utility

(2) Microeconomics : Individual income : : Macroeconomics :

Ans. National Income

(3) : Central bank : : SBI : Commercial bank

Ans. The Reserve Bank of India

(4) Rise in price : Expansion of supply : : Fall in production cost :

Ans. Increase in supply

(5) Pen and ink : Complementary goods : : Car and milk:

Ans. Unrelated goods

(D) Give an economic term :

(1) Reward of entrepreneur.

Ans. Reward of entrepreneur – Profit.

(2) Number of firms producing identical product.

Ans. Number of firms producing identical product – Industry.

(3) Compulsory contribution from the person to the government without reference to special benefits confirmed.

Ans. Compulsory contribution from the person to the government without reference to special benefits confirmed – Tax.

(4) The additional utility derived from the consumption of an additional (last) unit of a commodity.

Ans. The additional utility derived from the consumption of an additional (last) unit of a commodity – Marginal Utility

(5) A situation where less quantity is demanded at higher price.

Ans. A situation where less quantity is demanded at higher price – Contraction of Demand.

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Question 2. (A) Identify and explain the concepts from the given illustrations :

(1) Due to rise in prices of mango, Sheetal demanded only three dozen mangoes instead of five dozen.

Ans. (1) (A) Identified concept : Contraction in demand.

(B) Explanation of concept : Other factors remaining constant, a fall in demand due to a rise in price is called contraction in demand.

(2) Razak, instead of demanding more, reduced the demand of vegetable ghee as his salary increased.

Ans.(2) (A) Identified concept : Negative income elasticity of demand.

(B) Explanation of concept : When demand for certain goods decreases due to a rise in the income of the consumer, such goods are said to have negative income elasticity of demand. (Inverse relation between the demand and income) Inferior/Giffen goods have negative income elasticity of demand.

(3) ABC firm sold 10 chairs charging ` 1000 each and received ` 10000.

Ans.(3) (A) Identified concept : Total revenue.

(B) Explanation of concept : Total revenue is the total sales proceeds of a firm by selling a commodity at a given price. It is the total income of a firm. Total Revenue = Price × Quantity. In the given illustration, ABC firm’s Total Revenue = 1000 × 10 = ` 10,000.

(4) Maharashtra purchased wheat from Punjab.

Ans.(4) (A) Identified concept : Internal/Home trade (Inflow of goods)

(B) Explanation of concept : Internal trade is the purchase (inflow) and sale (outflow) of goods and services within the geographical boundaries of a nation.

(5) Tina deposited a lump sum amount of ` 50,000 in the bank for a period of one year.

Ans.(5) (A) Identified concept : Fixed deposit.

(B) Explanation of concept : A fixed deposit is a type of deposit in which a person deposits a certain amount in the form of a deposit in a commercial bank for a fixed period of time. He can withdraw the amount from the deposit after a specified period.

(B) Distinguish between :

(1) Utility and Usefulness.

Ans:

Utility	Usefulness
(1) Meaning : The want satisfying capacity of a commodity is called utility.	A quality of a commodity benefitting a consumer is called usefulness.
(2) Interrelationship : A commodity possessing utility may not be possessing usefulness.	A commodity possessing usefulness definitely possesses utility.

(2) Expansion of Supply and Contraction of Supply.

Ans:

Expansion of Supply	Contraction of Supply
(1) Meaning : A rise in supply caused by rise in the price while other factors remaining constant is called expansion (extension) in supply.	A fall in supply caused by fall in price while other factors remaining constant is called contraction of supply.
(2) Equilibrium Point : In expansion of supply, the new equilibrium point of price and supply moves upwards from the left to the right on the same supply curve.	In contraction of supply, the new equilibrium point of price and supply moves downwards from the right to the left on the same supply curve.

(3) Direct Tax and Indirect Tax

Ans:

Direct Tax	Indirect Tax
(1) Meaning : A tax which is levied on the income or property of an individual and so in which the impact and incidence of tax is on same head is called direct tax.	A tax which is levied on goods and services and so in which the impact of tax is on one person (seller) and the incidence of tax is on another person (buyer) is called indirect tax.
(2) Examples : Income tax, property tax, etc. are the examples of direct tax.	(2) Examples : Income tax, property tax, etc. are the examples of direct tax.

(4) Simple Index Numbers and Weighted Index Numbers

Ans:

Simple Index Numbers	Weighted Index Numbers
(1) Meaning : Index numbers measured by giving equal importance (weight) to every commodity are known as simple index numbers.	Index numbers measured by giving suitable importance (weight) to every commodity on the basis of their quantity are known as weighted index numbers.
(2) Nature : The measurement of simple index numbers is comparatively simple.	The measurement of weighted index numbers is comparatively complex.

(5) Money Market and Capital Market

Ans:

Money Market	Capital Market
(1) Meaning : A type of financial market in which short-term finance is provided is called the money market.	A type of financial market in which the medium term and long term finance is provided is called the capital market.
(2) Constituents : The Reserve Bank of India, commercial banks, co-operative banks, development financial institutions, Discount and Finance House of India, indigenous bankers, money lenders, unregulated non-bank financial intermediaries, etc. are the constituents of money market in India.	Government securities market, Industrial securities market, development financial institutions, financial intermediaries, etc. are the constituents of capital market in India.

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Question 3. Answer the following questions in brief :

(1) Explain the concept of market and the types of market on the basis of place.

Ans: (A) Meaning : Market is a network of dealings between potential buyers and potential sellers.

(B) Types of markets on the basis of place : The types of markets on the basis of the place are as follows :

(i) Local market : Local market is a market in which sellers sell and consumers buy a product in the region or area in which it is produced.

(ii) National market : National market is a domestic market in a given country. It is a market in which buyers and seller trade goods and services within the national borders. Each national market is governed by the regulation of its own country.

(iii) International market : International market is a worldwide (global) market in which buyers and sellers trade in goods and services across the national borders. International market is governed by the international regulations.

(2) Explain the concept of Theory of Welfare. Explain the scope of microeconomics with reference to the theory of welfare.

Ans: (A) Meaning : Theory of Welfare lies within the scope of microeconomics. Theory of Welfare basically deals with efficiency in the allocation of resources. Efficiency in allocation of resources is attained when it results in the maximum satisfaction of people in an economy.

(B) Scope of microeconomics with reference to the Theory of Welfare : Microeconomics studies the following three efficiencies in its scope :

(i) Efficiency in production : Efficiency in production means to produce maximum possible amount of goods from the given amount of resources. Microeconomics analyses how efficiency in production can be obtained.

(ii) Efficiency in consumption : Efficiency in consumption means distribution of produced goods and services among the people for consumption in such a way as to maximise total satisfaction of society. Microeconomics analyses how efficiency in consumption can be obtained.

(iii) Overall economic efficiency : Overall economic efficiency means producing those goods which are most desired by people in society. Microeconomics analyses how overall economic efficiency can be obtained.

(3) Explain the concept of Price Index Number. Explain the steps in constructing price index number.

Ans: (A) Meaning :

(1) Price index number is a type of index number derived by multiplying the ratio of sum of the prices of various commodities of the current year and sum of the prices of various commodities of the base year by 100.

(2) The formula for measuring price index number is as follows :

(B) Steps in constructing price index number :

(1) Adding the prices of various commodities of the current year.

(2) Adding the prices of various commodities of the base year.

(3) Multiplying the ratio of sum of the prices of various commodities of the current year and sum of the prices of various commodities of the base year by 100.

(4) Explain any four problems of capital market in India.

Ans: The following are the problems of capital market in India :

(i) Financial Scams, Insider trading and Price manipulation : Financial scams are on the rise in the Indian capital market. Rising financial scandals have increased the distrust of the general public and as a result, investors’ confidence in investing in the capital market has waned. As a result, capital markets face irreparable losses in the form of declining public confidence. Some individuals have access to confidential information of companies. Such individuals, for personal gains, buy and sell securities on the basis of the unpublished confidential information of companies. Some individuals deliberately raise or lower the price of shares by buying and selling shares of certain companies for personal gain. Such illegal transactions are adversely affect the smooth functioning of the capital market of India.

(ii) Inadequate debt instruments : In the capital market of India, debt instruments include bonds, debentures, etc. Due to narrow investor base, high cost of issuance, restrictions on entry of small and medium enterprises into the capital market, etc., there is relatively few trading in debt securities.

(iii) Decline in the volume of trade : Capital market investors can trade online. As a result, capital market investors in various parts of the country prefer to invest in securities listed in premier stock exchanges like in the Bombay Stock Exchange and in the National Stock Exchange. As a result, there has been a sharp decline in trade in regional stock exchanges in India.

(iv) Lack of information efficiency : If the company’s current stock price incorporates all the information about the company, then a market is said to be informationally efficient. However, the efficiency of information in the Indian stock market is relatively low compared to other developed countries. As a result, investors do not get the expected return on investment and thus lose faith in the capital market.

(5) Explain the concept of Balance of Trade.

Ans: The concept of balance of trade can be explained with the help of the following points :

(i) Balance of trade is the difference between the value of a country’s exports and imports for a given period. Balance of trade is also referred to as the international trade balance.

(ii) According to Bentham, “Balance of trade of a country is the relation over a period between the values of her exports and imports of physical goods.”

(iii) According to Samuelson, “if export value is greater than the import value it is called as trade surplus and if import value is greater than export value, then it is called as trade deficit.”

(iv) It is clear from the above definitions that balance of trade includes the value of imports and exports of visible goods and invisible goods.

Question 4. What is non tax revenue of government? Explain non tax sources of revenue of government.

Ans: (A) Meaning of non tax revenue of government : Revenue received by government through the sources other than direct taxes and indirect taxes is known as non tax revenue of government.

(B) Non-tax sources of revenue of the government : Non tax sources of revenue of the government are as follows :

(i) Fees : Fee is paid by citizens in return for certain specific services rendered by the government. For example, education fee, registration fee, etc.

(ii) Prices of public goods and services : Modern governments sell various types of commodities and services to the citizens. A price is a payment made by the citizens to the government for the goods and services sold to them. For example, railway fares, postal charges, etc.

(iii) Special Assessment : The payment made by the citizens of a particular locality in exchange for certain special facilities given to them by the authorities is known as ‘special assessment.’ For example, local bodies can levy a special tax on the residents of a particular area where extra/special facilities of roads, energy, water supply, etc. are provided.

(iv) Fines and Penalties : The government imposes fines and penalties on those who violate the laws of the country. The objective of the imposition of fines and penalties is not to earn income, but to discourage the citizens from violating the laws framed by the government. For example, fines for violating traffic rules. However, the revenue from this source is comparatively limited.

(v) Gifts, grants and donations : The government may also earn some income in the form of gifts by the citizens and others. The government may also receive grants from the foreign governments and institutions for general and specific purposes. Foreign aid has become an important source of development finance for a developing country like India. However, this source of revenue is uncertain in nature.

(vi) Special levies : The government levies duties on those commodities, the consumption of which is harmful to the health and well-being of the citizens. Like fines and penalties, the objective of special levies is not to earn income, but to discourage citizens from the consumption of harmful commodities. For example, duties levied on wine, opium and other intoxicants.

(vii) Borrowings : The government borrows from the citizens in the form of deposits, bonds, etc. Government also gets loans from foreign governments and international organizations such as IMF, World Bank, etc. In modern times, loans are becoming more and more popular source of revenue for the governments.

Question 5. What is the meaning of Demand? Explain the determinants of demand.

(A) Meaning : Demand refers to a desire backed by the ability to pay and the willingness to pay for a particular commodity. Demand has relation with price, place and time.

(B) Determinants of demand : The determinants of demand are as follows :

(i) Price : Price is one of the most important factors that affect market demand. Usually, larger quantity is demanded at a lower price and vice versa.

(ii) Income : Income is yet another important factor that affects market demand. Income affects the purchasing power of a consumer. Income and demand are directly related to each other. Normally, demand rises with increasing income and vice versa.

(iii) Prices of substitutes goods and prices of complementary goods : Market demand also gets influenced by the prices of substitutes. If a substitute is available at a lower price, people demand the substitute good in greater quantities than the commodity in question. For example, if the price of tea falls, demand for coffee tends to fall. Similarly, Market demand also gets affected by the prices of complementary goods. If the price of a complementary good rises, the demand of the commodity in question tends to fall. For example, if the price of petrol rises, demand for cars tends to fall.

(iv) Nature of products : If a commodity is a necessity and its use is unavailable, then its demand will continue to be the same irrespective of change in its price. For example, demand for salt, medicines, etc. Thus, nature of commodity determines the demand.

(v) Size of Population : Demand for various goods and services get affected by the size as well as the composition of population. An increase in population leads to an increase in demand for a variety of goods and services. On the other hand, decrease in population leads to decrease in demand for a variety of goods and services.

(vi) Expectations about future prices : Expectations about future prices also determines the demand. For example, if consumers expect fall in the price of a particular commodity in the near future, they will demand less quantities of such commodity though its present price is comparatively less and vice versa.

(vii) Advertisements : Nowadays, the market demand for goods and services gets highly influenced by advertisements and other promotional activities. Attractive advertisements, sales promotion schemes and effective salesmanship lead to increase in demand for various goods and services. For example, demand for toothpastes, cosmetics, etc.

Question 6. What is Elasticity of Demand? Explain the importance of elasticity of demand.

Ans: (A) Meaning : Elasticity of demand can be explained with the help of the following points :

(i) The elasticity of demand is a technical term which describes the responsiveness of change in quantity demanded to fall or rise in its price or the responsiveness of change in quantity demanded to change in other factors such as change in the income of the consumer or change in the prices of other goods.

(ii) According to Alfred Marshall, “Elasticity of demand is great or small according to the amount demanded which rises much or little for a given fall in the price and quantity demanded falls much or little for a given rise in price.”

(B) Importance of elasticity of demand : The importance of elasticity of demand can be explained with the help of the following points :

(i) Importance to producers : The concept of elasticity of demand helps the seller in fixing the prices of his products. If the demand for a commodity sold by the producer is inelastic, the producer can charge higher price for such a commodity and can earn the maximum profit. On the other hand, if the demand for a commodity sold by the producer is elastic, the producer can charge lower price for such a commodity and can earn the profit by its maximum sale.

(ii) Importance to the Government : The concept of elasticity of demand helps the finance minister and the government in framing the taxation policy. If the demand for a particular commodity is inelastic, the government can collect more revenue by imposing heavy taxes on such a commodity. Therefore, generally heavy taxes are imposed on commodities like cigarettes, liquor, etc. On the other hand, if the demand for a particular commodity is elastic, the government can impose low taxes and can encourage sale of such a commodity and can collect revenue from it.

(iii) Importance in factor pricing : The concept of elasticity of demand also helps in the determination of wages of workers. For example, the demand for skilled employees performing higher intellectual work is less elastic, therefore they can demand more salary. On the other hand, the demand for unskilled labourer performing physical work is more elastic, therefore they have to accept comparatively low wages.

(iv) Importance in foreign trade : The concept of elasticity of demand is helpful to the government in determining the terms and conditions for international trade and framing the export and import policy. If the demand for a commodity exported is inelastic, the country can raise the price of that commodity in the international market. On the other hand, if the demand for a commodity exported is elastic, the country can focus on its maximum export at low price in the international market.

(v) Public utilities : The concept of elasticity of demand is helpful to government in taking decisions regarding manufacturing and selling various goods and services by various sectors in a mixed economy. In order to avoid the exploitation of the consumers and to promote the social welfare, public sector manufactures and sells certain goods and services having less elastic demand. For example, public utilities like railways have inelastic demand. Therefore to avoid the exploitation of consumers, the government can either subsidise or nationalise such public utilities. On the other hand, government allows private sector to produce and sell those commodities having relatively elastic demand.